Composition of Foreign Trade
Composition of Foreign Trade
Composition of Foreign Trade
3.4 Economics
UID - UG2017-066
Semester III,
OBJECTIVE
1. To Determine the meaning of foreign trade.
2. To state the importance of foreign trade in India.
3. To state the composition of India’s foreign trade.
1
Cambridge Dictionary
foreign currency exceed its receipts, it creates a problem known as problem of foreign
exchange.
Imports are of great importance for any country in the following ways:
Capital goods like machinery and equipment are required for industrial development.
Industrial development also depends upon infrastructural facilities like power, transport etc.
Agriculture also requires machines like tractors, harvestors etc. for faster growth. Fertilizers,
pesticides etc. play a key role in agricultural development. A developing country does not
have sufficient resources-or knowhow to produce such goods or even if it is producing these
goods, the production may not be sufficient. This defeciency can be made by importing these
goods. Thus, imports can increase the productive capacity of a country.
Imports can fill the gap between domestic demand and domestic supply of essential goods
like food, cooking oils etc. For example, in early years after Independence there was food
shortage in our country. So large quantities of foodgrains like wheat and rice wore imported.
Even now our country does not produce vegetable oils enough to meet our requirements.
Hence their import continues.
The developing countries may not be producing non-essential goods like luxury and semi-
luxury items such as television, motorcars, washing machines etc. The rising income levels in
2
Inferred from the pdf - Impact of international trade on economic growth by DI Makhmutova and importance of
international trade by GI Vijayasri
the developing countries create demand for such goods. A country can get these goods from
other countries.
The import of goods may help in improving the quality of domestic production. When faced
with competition from foreign goods, the domestic producers try to improve the quality of
their products. By doing so, they can of compete with foreign producers. For example, import
of electronic goods into India has contributed a lot in improving the quality of similar Indian
goods.
•Exports help in increasing production : Exports help in selling surplus production. For
example, in India demand for tea is less than its potential production. If.we had not been
exporting tea, our total production of tea would have been smaller. Thus export to European-
markets has helped us to expand our tea production.
•Exports helps in employment and income 'generation’.Exports increase the size of the
market and this-encourage more production. Larger production involves greater use of man-
power. Thus more people get jobs and greater employment and 'income is generated.
Expansion of related industries : Expansion of one industry helps in the expansion of other
industries. For example, when exports result in expansion of an industry, it also creates
greater demand for packaging, transporting etc., and thus lead to the growth of these sectors.
COMPOSITION OF FOREIGN TRADE
Composition of foreign trade means goods that we are exporting and goods that we are
importing. Therefore, composition of trade consists of composition of exports as well as
composition of imports.3
. Fuel
Coal and POL (Petroleum, Oil and Lubricants) are the important sources of energy. After
Independence with the growth, of industry and trade, the requirement of POL has increased
very fast. Our domestic production is not sufficient. Now India imports petroleum goods in
such large quantities that their share accounts for over one-fifth of our total imports.
3. Fertilizers
3
Structure of foreign Trade – Elhanan Helpman volume 13 no.2
Fertilizers are very important input of agriculture. Our domestic production of fertilizers falls
short of our requirements.
This commodity group includes items like chemicals, pearls and precious stones, iron and
steel and non-ferrous metals etc
7. Unclassified items
Many other items of imports which have not been covered in above categories constitute
unclassified items.
CONCLUSION
Trade flows for India have grown at a robust pace during the past decade . In general, one may
state, that India has expanded its commodity basket of trade from primary agri-products to
manufactured goods and petro-related products; with Asia emerging as the largest trade partner
in recent years. It is interesting to note that there have been some variations in the commodity
composition and direction of trade, although not alike for imports and exports.
Exports have registered shift in commodity compositions, with share of manufacturing goods
coming down to give way to export of petroleum and crude products. In a way this does reflect
India’s strength in refining capability.
4
Directorate general of commercial intelligence and statistics ,Kolkata - dgcisol.gov.in
In terms of export-destination, Asia has been and continues to be a major partner through the
years. This has helped to diversify our exports basket and buffered to an extent the impact of any
slowdown in the western world.
Imports on the other hand, have registered shifts in country-sources as well as commodity
basket. While POL5 share has increased, within non-POL category, there has been an increase in
Import of gold, coal and ores in recent times. From a geographically-dispersed country-source
profile, imports sources are now concentrated in the Asia region itself. Partly, this is due to the
higher import of POL products and also the emergence of China as a major trading partner.
5
Petroleum, Oils, and Lubricants