Foreign Trade Has Been Playing A Vital Role in The Economic Progress and Prosperity of Every Country - in Modern Days
Foreign Trade Has Been Playing A Vital Role in The Economic Progress and Prosperity of Every Country - in Modern Days
Foreign Trade Has Been Playing A Vital Role in The Economic Progress and Prosperity of Every Country - in Modern Days
https://doi.org/10.22214/ijraset.2021.39682
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
I. INTRODUCTION
A country’s position in the international scenario is evaluated by its economic power. The economic strength of a country depends
upon its various economic components. One of the most important economic components is the foreign trade of the country.
Foreign trade has been playing a vital role in the economic progress and prosperity of every country. In modern days foreign trade
has assumed an immense prominence and substance for economic development of a country because of interdependence of
economies, increasing specialization and joining regional cooperation. Foreign trade has worked as “Engine of Growth” for
developing countries like India. The foreign trade of any nation comprises of inward and outward movement of goods and
services, which ultimately affects the inward and outward flow of foreign exchange from one country to another.
For providing, regulating and creating necessary environment for its orderly growth, several Acts have been put in place. The
international trade of India is directed by the Foreign Trade Development & Regulation Act, 1992 and the rules and orders issued
there under. The physical movement of goods and services through various modes of transportation and Payments for Export and
Import transactions are governed by Custom Act, 1962 and Foreign Exchange Management Act, 1999 respectively. (Sahu, 2017) An
analysis of foreign trade indicates the composition and the determinants of foreign trade. By composition is meant the various
commodities exported and the various commodities imported by country. By determinants is meant the factors that influence the
value of the exports and the value of the imports. Based on these criteria, the countries could be classified either as developed
countries or as developing countries. In today’s world, nations cannot exist on economic isolation. In other words, we can say that
any country in the world cannot claim that it is self-sufficient to possess facilities for economical production of all goods and
services that are consumed by its people. Some nations have rich in natural resources and agricultural products such as fertile soil,
timber, fossil fuels, tea, rice, pulses etc., while other nations have scarcity of many of these resources. So, there is a need of
international trade for the benefit of countries.
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International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
This was because it did not have proper resources for the development, not only in terms of natural resources but also in terms of
financial and industrial development. At that time India’s foreign trade was regulated through economic planning. During the period
of 1949-1970, India’s export has grown at a very slow rate. In the words of Harikumar (2014) “In the period of 1950 to 1951, main
products dominated the Indian export sector. These included cashew kernels, black pepper, tea, coal, mica, manganese ore, raw and
tanned hides and skins, vegetable oils, raw cotton, and raw wool. These products comprised of 34 percent of the total exports. In the
period of 1950s there was balancing with payments crunch. The export proceeds were not enough to fulfil the emerging import
demand.” In 1950s, India entered into planned development era. Due to continuous increasing imports and stagnant exports, policy
of import substitution was started in 1960s to cut down on imports. During this period, Indian Government had implemented
the policy of export pessimism and import substitution. During the period of 1971-1991, export performance had improved. In the
late 1960s, Government of India took significant steps like establishment of Indian Institute of Foreign Trade (IIFT) and others such
institutions for the promotion of foreign trade. The world economy was also showing rapid growth during 1970s. The growth rate of
exports was 15.8 percent in 1970s, which declined to 8 percent in 1980s. The decade of 1970 also witnessed an upsurge in the
imports, resulting in a higher growth rate for imports as compared to exports. The export was flourishing at the time of 1970s,
however, showed a declining trend during the starting of 1980s. During the second half of the 1980s, due to recovery in the world
economy, the exports of India grew at a significant rate (17.8 percent). There was found an unquestionable improvement in the
competitive position of India in terms of trade during the period as a result of the increased export subsidies. India has a very high
rate of merchandise trade growth compared with per capita income. For instance, compound annual growth rate of merchandise
trade are rises from 9 percent to 21 percent in 1990-95, whereas per capita income has moved slowly to about 8 per cent over 2000-
05 from around 6 percent in 1990-95. (Yadav, 2012)
India adopted New Economic Reforms in 1991 for the improvement in the economy and country’s growth. Economic Reforms
comprises that the introduction to inventive policies such as abolishing the market trade barriers, boosting economic participation in
private sector, decrease in the fiscal deficit, an increase in exports and reducing imports, etc. for increasing the growth rate of the
economy. Thereafter, the government of India has announced many programs related to Economic Reforms in India. Liberalization,
Privatization and Globalization (LPG) model is one of them. The concept of globalization and liberalization was introduced in this
era and it got momentum through process of economic integration. In the post liberalization period, rate of growth of import and
export increased manifold. Many export promotion policies were started after liberalization. Various schemes have been introduced
by the government from time to time to encourage exports, such as Export Promotion Capital goods (EPCG), Duty Entitlement
Passbook (DEPB), Software Technology Parks (STPs), Special Import License (SIL), Agri Export Zones (AEZ), Export Oriented
Units (EOUs), Duty Free Replenishment Certificate (DFRC), Special Economic Zones (SEZs), Electronics Hardware Technology
Parks (EHTPs), and Biotechnology Parks (BTPs).
In 1991, the major program of economic reform were introduced which emphasize on external sector wherein the protective tariffs
were decreased, changes into foreign investment and the restrictive import licensing system was relaxed and simplified. This policy
mainly focused on liberalization of capital goods and imports from industry for encouraging the domestic and export oriented
growth. India’s trade was changed significantly into the post reform periods. After the New economic reforms, volume of trade
rose up and composition of trade was also frequently changed. India’s chief exports involve machinery items, chemicals, precious
and semi-precious stones and electronic goods. On the other hand, side major imports were involved fertilizers, gold, petroleum and
petroleum products. Through the introduction to new economic reforms, there was also an enlargement of the direction of India’s
foreign trade with the new other countries and regional trading blocs. Before these reforms, India’s exports were limited to OECD
and OPEC countries but after the new economic policy our country turn towards the new Asian countries and consequently China
became a major trading partner of India. In terms of direction, traditionally EU and USA was the major trading partners of India but
from the last few years this scenario has been changed and India’s trade is increasing with mainly East Asian countries.
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2041
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
The trade policy of India has undergone various changes time to time and the major changes involved simplification of processes
and techniques, elimination of quantitative restrictions and reduction in the tariff rates. On the other side, after the liberalization and
globalization the foreign trade has been playing a very important role in increasing the GDP level of India. The foreign trade acts as
an engine of growth of India’s trade in terms of increase in Export and Import. Thus, it is essential to understand the trend of the
foreign trade since 1991.
IV. LITERATURE REVIEW
Misra, Jena and Shil (2011), analyzed and evaluated the India’s foreign trade position in terms of volume, composition and direction
during the post liberalization period. This study also suggest the ways and means for improving foreign trade of India on the basis of
the observation of the study. Yadav (2012), explained the regional patterns of inflows and outflows of trading activity which
includes the changes in commodity composition and direction. With this background this study is suggested that globalization has
directed to specialization of production and expansion of consumption. Finally, it can be conclude that manufacturing sector has
increased its share vis-à-vis other tradable sectors and Indian trade is gradually moving away from low value-added product. Singh
(2014), analyzed the trend and composition of international trade during the post liberalization era and also determine the effect of
foreign trade on the economic growth of India. This study shows that though the total exports and imports both have improved but
the growth rate of imports is higher in comparison to the growth rate of exports. Major portion of exports comprises the
manufactured goods while petroleum and crude products hold the major portion of the imported goods. It is also found that there is
positive relationship between export and economic growth while imports are negatively related with the economic growth of
India. Jadhav and Satpute (2014), evaluated India’s direction and composition of foreign trade for the period 2003-04 to 2012-13. It
may be found that there has been a gradual increase in India’s export and imports and also there is a rise in trade deficit. India has
good trading associations with all the topmost countries in the world. More than 50% of India’s total export is with Asia and
ASEAN region and about 60% of India’s total imports are with the same countries. As far as India’s composition of foreign trade
is concerned it also has undergone major changes after independence. With the industrialization of the economy, compositions of
export have undergone changes. India now exports items such as machinery, chemicals and marine products. Thus, we can say that
India now export the same items which we once use to import. This is a good sign for one of the fastest emergent economies in the
world. So in the present research study effort has been made to cast light upon India’s direction and composition of foreign trade
especially after 2000. Mr. A. Harikumar (2014), examined the foreign trade of India during pre and post the liberalization period.
This study found that with the Liberalization, Privatization and Globalization of the Indian economy and following liberal foreign
trade, there had been changes in the business environment. With the development of science and technology there is a change in
the nature of the Indian economy. There had been increase in the trade volume in the India’s international trade, and the exports
from India also have increased. Sachin N. Mehta (2015), examined the trend outline of India’s Exports, Imports and Total
Trade during the pre and post New Economic Policy program with the time series data from 1971 to 2013. Further, this study also
analyzed the impact of New Economic Policy on Exports, Imports and Total Trade of India using paired sample‘t’ test. It suggests
that there is more increment in the growth rate of imports in comparison to growth rate of export. The outcome of paired sample “t”
test suggests that there was positive impact of new economic policy on India’s Exports, Imports and Total Trade. It means after the
new economic policy India’s Exports, Imports and Total Trade had increased significantly. Matore and Sagar (2015), concluded
that, the exports was rises at a decreasing rate but the imports are rises at an increasing rate. As a result, the balance of trade is
becoming unfavorable to India during the post globalization period. It is a significant achievement for India that we have changed
ourselves from a mainly primary goods exporting country into a non-primary goods i.e. manufactured goods exporting country.
Kumar and Sood (2016), examined the growth of foreign trade and balance of payments in pre and post reforms period. This
study also suggest to ways and means for accelerating India’s Foreign Trade. Therefore, the fact that introduction of economic
reforms had a positive impact on India’s foreign trade, cannot be denied. A push has been given to the exports but the increasing
rate of imports is higher in comparison to the increasing rate of exports. As a consequence of it economic reforms have not
flourished in correcting trade imbalance. Kabita Kumari Sahu (2017), examined the India’s foreign trade pre and post liberalization
in India. This study found that the total trade after liberalization has been significantly higher than the total trade before
liberalization and the imports were more than the exports in all the years. Thus, the liberalization period is effective insignificantly
increasing the export of India. This study is suggested that import restriction is necessary on non-essential items to narrow down the
trade deficit.
V. OBJECTIVE OF THE STUDY
The prime objective of the study is to examine the trade pattern of India’ Foreign Trade for a period oftwenty one years before
and twenty one years after the new economic reforms period (1991-1992).
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2042
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2043
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2044
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
Table-2 and Graph-2 presents an analytical study of India’s Export and Import and also shows the percentage of annual growth rate
respectively. Exports and Imports grew with varying rates during the period under study. In graph, values of exports and imports is
showing significantly a rising trend.
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2045
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2046
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
The growth rate of imports was very low in 2000-01 (0.48 %). It regained in 2002-03, and has grown steadily thereafter and touched
42.70 % in 2004-05 which was also the highest annual growth rate during the post-reforms period under study and then declined up
to 20.68 % in 2008-09. The global slowdown during 2008 had its impact on the economy of almost all the countries, including
India. The impact was such that during 2009-10, both exports as well as imports and this led to negative imports growth rate of -
5.05 % in 2009-10 Lastly, this rate was recorded at 0.29 % in 2012-13. Data clearly shows that like exports annual growth rate of
imports in both the periods is also fluctuating because of many reasons. It does not give clear picture of the growth rate of imports.
Therefore, compound annual growth rate is calculated. The CAGR % of post-reforms period is more than the pre-reforms period.
The compound annual growth rateof imports in the pre-reforms period was 12.80 % whereas in the post-reforms period it went up
to 16.82%. It can be said that economic reforms have increased imports significantly. The CAGR of Imports is higher than that of
exports even in the post reforms period. It is important to mention here that the Indian exports are not increasing at expected rate
instead imports are increasing because of liberalized trade policies.
The mean value in post-reform period is more than the mean value in pre-reform period (Table-3). Hence it can be said that the
export in pre-reform period was less than the export in post-reform period. As per the result of paired t-test, the p value (0.000) is
less than the level of significance value 0.05, indicating that there is significant increase in the exports after the post-reforms period.
©IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 2047
International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com
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