Generally, no country is self-sufficient. It has to depend upon other countries for importing the goods which are either non-available with it or are available in insuficent quantities. Similarly, it can export goods which are in excess qunatity with it and are in hight demand outside. Trading with other countries can play an important role for the economic development of an economy. In the past, many economies have flourished just on the basic of foreign trade.
Composition and Direction
By composition of trade we mean the types of products in which a country trades. In other words, it shows the types of goods imported and exported by a particular country. The composition of trade is indicative of the structure and level of development of an economy. For example, most of the developing economies generally export primary goods or raw materials of agricultural orgin and import manufactured industrial goods. As an economy develops it begins to export more of manufactured goods and imports industrial raw materials, capital equipment and technical know-how.
By direction of trade we mean the countries to which a particular country exports its goods and the countries from which it improts its goods. The direction of trade is also an indicator of the level of development of an eocnomy. As an economy grows, it seeks new outlets for its exports and new sources of imports. It no longer remians dependent on a few countries for its foreign trade.
Pattern of imports
Imports are normally governed by the government. With a change in policy the compostion of imports generally undergoes a change. However, the needs of an economy at a particular time also play an important role in determining the composition of imports. Imports of any economy generally comprise of consumer goods, intermediate goods and capital goods.
Consumer goods
In consumer goods we generally include food and allied products like edible oil, pulses, etc. India used to heavily import consumer goods at the time of independence. However, since then heavy restrictions have been imposed on their imports so that foreign exchange thus saved could be spent on imports of other essential commodities. However, whenever there have been severe shortages of these goods speciallly foodgrains their imports have been allowed. Ever since 1976-77, the import of food-grains has been almost negligible. Moreover, consumer goods which as a whole constituted about one-fourth of the total imports in 1950-51 and one seventh of the imports in 1970-71 constituted just 3.5 per cent of the total imports in 1990-91. In 1997-98, these goods constituted just 1.5 per cent of the total imports. This happened because of improved domestic availability of these essential items in the wake of sustained strength of agricultural production and resultant sharp decrease in the imports of cereals.
Capital goods
Since the indigenous technology was insufficient to establish these industires, machinery and other capital equipments were imported in a big way to strengthen the ‘machine-making’ capability of the country. These goods which constituted about one-fifth of our imports in 1950-51 constituted about one-third of the total imports in 1960-61. With the help of these imports the country developed a sound capital structure and in course of time the import of these goods reduced. The indigenous machinery replaced the imported machinery. These goods constituted about 22 per cent of our total imports in 1991-92. But their share declined to 20.4 per cent in 1992-93. This happened because of slow recovery of industrial output and exchange rate adjustments and availability of domestic substitutes. But they picked up again in 1994-95 with 26 per cent share. This happened due to recovery in the industrial growth in the wake of liberalised economic policy. In 1995-96, their share stood at 28 per cent, reflecting the buoyancy of the industrial sector. However, due to industrial depression, their import fell down to 20.1 per cent in 1996-97 and further to 11.4 per cent in 1999-2000.
Sources of imports
At the time of independence a major part of India’s trade was either directly with Britain or its colonies or allies. The pattern continued for some years after independence as well since India did not explore other markets of the world for its imports. U.K. and USA alone contributed to about 40 per cent share in our imports in 1950-51. The trade with other countries whether socialistic or capitalistic countires was negligible. As political and diplomatic contacts developed, economic relation also made a headway. The situation has changed very much and now we trade with almost all major countries of the world. This had reduced our economy’s vulnerability to political pressure from any corner.
Now, India’s trading partners can be classified into following categories.
1. Organisation for Economic Cooperation and Development (OECD)
2. Organisation of Petroleum Exporting Countries (OPEC)
3. Eastern Europe
4. Developing Countries
5. Others
Pattern of exports
At the time of independence, the three most important commodities in India’s export basket were jute, tea and cotton textiles. Together they constituted more than 50 per cent of total export earnings. The share of manufactured goods was negligible reflecting the underdeveloped nature of the economy.
As the industrial structure of the economy got strengthened, new opportunities for exporting new products unveiled themselves and the composition of exports underwent a substantial change. The combined share of jute, tea and textiles fell down from 50 per cent in 1950-51 to 27 per cent in 1970-71 and further to around 9.4 per cent (inclusive of cotton yarn) in 1999-2000. As against this the share of engineering goods which was hardly 1 per cent in 1950’s went up 13 per cent in 1970-71 and sood at around 21 per cent in 1999-2000.
In the past few years, the main thrust for the vigorous export growth has been provided by manufactured goods whose competitiveness in overseas markets has been considerabley improving due to selective promotional strategies. The proportion of manufactured items to total exports has risen from 58 per cent in 1970-71 to 81.6 per cent in 1999-2000.
The most spectacular increare has been recorded by handicrafts. They contributed only 5 per cent to our total exports in 1970-71. In 1985-86, thier share increased to about 20 per cent and in 1999-2000 further to 24 per cent. Exports of gems and jewellery account for about 20 per cent share of the total exports in 1999-2000 as compared to around 15 per cent share in 1997-98.
Exports of leather and leather manufactures, a thrust area identified for intensive export promotion, had shown impressive increases during early nineties. Their share in total exports in 1970-71 was 5 per cent; it increared to about 5.4 per cent in 1995-96. But if fell down to 3.4 per cent in 1999-2000.
With manfactures exports, export of engineering goods has risen substantially. As a result their share in India’s export earnings rose from 1.3 per cent in 1960-61 to around 21 per cent in 1999-2000.
Exports of ready-made garments has merged an important foreign exchange earner in recent years. In 1970-71 exprots of ready-made garmets hardly constituted 2 per cent of the total exports. This rose from 12.8 per cent in 1999-2000.
The share of agricultural and allied products which was about 35 per cent in 1970-71 fell down to about 14.6 per cent in 1999-2000. The most important export item of 1960-61 was jute, which contributed about 20 per cent to total export earnings then, had a almost nil share in 1999-2000. Tea which was also an important foreign exhcnage earner in 1960-61 witnessed declining trends in seventies and eighties. Its share in total exports was 1.1 per cent in 1999-2000.
India’s exports of spices which account for about 20 per cent of world exports witnessed declining trend in late 1980’s and early 90’s. Exports of oilcakes, fruits and vegetables and marine products have shown increasing signs of improvement over the years. In fact, these have become important foreign exchange earners besides rice, raw cotton, tobacco, cashew kernels and ore and minerals.
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