Foreign Trade. .pptx BBA MINOR PROJECT

Foreign Trade: Meaning and
Direction and Composition of
India’s Foreign Trade
Presented by
Rajeev Singh Bhandari
Assistant Professor
Class: B.Com(H) V
Subject: Indian Economy -Performance and Policies(BCM 405)

INTRODUCTION
Meaning of Foreign trade:
 It refers to the exchange of goods and services between two or
more countries .
 It is also known as external trade.
According to Wasserman and Haltman, “International trade
consists of transaction between residents of different countries”.
 According to Anatol Marad, “International trade is a trade
between nations”.

Classification of foreign trade
Foreign
trade
Import
trade
Export
trade
Entrepot
trade

 Import Trade: It refers to as the purchase of good or services
by a domestic country from a foreign country.
• The buyer of the goods or services is referred to as the
“importer.”
 Export Trade: It refers to as the sale of good or services by a
domestic country to a foreign country.
• The seller of the goods or services is referred to as the
“exporter.”
 Entrepot Trade: It refers to as purchase of goods or services
from one country with the purpose of exporting to other
foreign country.
• In this of type of trade , a trader becomes both the
importer and the exporter of these goods.

MEANING OF TRADE BALANCE
• The trade balance is the difference between the
value of country’s exports and imports of goods
without taking into account all financial transfers,
investments and other financial components.
• A country's trade balance is positive or surplus, if
value of exports is more than imports .
• A country's trade balance is negative, or deficit,
if the value of imports is less than exports.
• The term trade balance is used for net exports in
the current account.

INDIA’S FOREIGN TRADE & TRADE
BALANCE
SOURCE: https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=19109

Balance of Payments
• The BoP is a statistical statement that comprises
transactions between residents and non-residents during a
period.
• In simple words it refers to statement of all transactions
that are made between one country with the rest of the
world over a given period of time, such as a quarter or a
year.
• It consists of the following :
– Goods and services account
– Primary income account
– Secondary income account
– Capital account
– Financial account
SOURCE: https://m.rbi.org.in/Scripts/PublicationsView.aspx?id=13013

Current Account
• The current account includes flows of goods, services, primary
income, and secondary income between residents and non-
residents and thus constitutes an important segment of BoP.
• While the “goods and services account” generally forms a major
part of the current account.
• The primary income account reflects amounts payable and
receivable in return for providing temporary use of labour, financial
resources, or non-produced non-financial assets (natural
resources).
• The secondary income account shows redistribution of income
between resident and non-residents, i.e, when resources for
current purposes are provided without economic value being
exchanged in return (transfers).
• The net effect of all the transactions under the above accounts is
known as the “current account balance”.

Current Account
• In other words, the current account balance
shows the difference between the sum of exports
of goods and services as well as income
receivable, on the one hand, and the sum of
imports and income payable on the other.
• From a macroeconomic perspective, the value of
the current account balance reflects the
inflow/outflow of foreign resources bridging the
savings-investment gap.

Capital Account
• The capital account comprises credit and debit
transactions under non-produced non-
financial assets and capital transfers between
residents and non-residents.
• Thus, acquisitions and disposals of non-
produced non-financial assets, such as land
sold to embassies and sales of leases and
licences, as well as transfers which are capital
in nature, are recorded under this account.

Financial Account
• The financial account reflects net acquisition and disposal
of financial assets and liabilities during a period.
• The sum total of net transactions under the current and
capital account represents net lending (surplus) or net
borrowing (deficit) by the economy from the rest of the
world, which is reflected in the financial account as net
outflow or inflow of capital.
• Thus, the financial account shows how the net lending to
or borrowing from the rest of the world has occurred.
Conversely, it shows how the current account surplus is
used or the current account deficit is financed.

KEY COMPONENTS OF INDIA’S
BALANCE OF PAYMENTS

From the Chart II.6.7 , we can conclude that Current account deficit increased to
2.1 per cent of GDP from 1.8 per cent a year ago, primarily due to higher trade
deficit.
From the Chart II.6.8 , The erosion in net terms of trade (ToT) caused by
increased in commodity prices contributed 0.5 percentage points of GDP to the
incremental CAD during 2018-19, higher import volumes contributed another 0.1
percentage points
SOURCE: https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1257

Direction of foreign trade
 In simple terms , direction of foreign trade
refers to country’s trading partners. Trading
partners can be classified as Exporting
countries and Importing countries .
 It also refers destination of exports and
source of imports.
 It throws lights on changing trading partners
with the span of time.

Composition of foreign trade
In simple terms, composition of foreign trade
refers to the trade baskets of the country.
It throws light on the items/commodities
which a country is exporting and importing.
It helps in understanding the nature of
commodities which a country is trading (
Principal commodities of export and imports)

DIRECTION OF INDIA’S FOREIGN TRADE(2014-2019)
https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=19117

Composition of India’s Import ( 2013-2019)
TOP 10
IMPORTS
ITEMS

Composition of India’s Export ( 2013-2019)
TOP 10
EXPORTS
ITEMS

Foreign Trade. .pptx BBA MINOR PROJECT

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