AN EMPIRICAL STUDY ON FOREIGN TRADE IN INDIA AN OVERVIEW

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1 AN EMPIRICAL STUDY ON FOREIGN TRADE IN INDIA AN OVERVIEW Dr. M. RAJARAJAN Assistant Professor, Commerce Wing, DDE, Annamalai University, Annamalainagar Dr. T. SIVAKUMAR Assistant Professor, Department of Commerce, D.B. Jain College, Thorapakkam, Chennai , ABSTRACT India s foreign trade have played vital role in the economic development in the past years. This paper highlighted the performance of India s foreign trade and the various economic policies related to foreign trades which have contributed to its growth. Export of goods and services to other countries gives more foreign exchange. Similarly imports leads to expend the home currencies. So every country should concentrates on the export of their goods than the import. International trade takes place between the two or more countries. It involves different currencies of different countries and is regulated by laws, rules and regulations of the concerned countries. Thus, International trade is more complex. This paper also deals about the Balance of Payments, Disequilibrium and Export & Import of principal goods of the country. This article highlights an empirical study on foreign trade in India. KEYWORDS: Export & Import, Balance of Payments, Disequilibrium, Foreign Trade Policy and Foreign Exchange. INTRODUCTION Every country requires goods and services to satisfy the needs of their people. Resources for production of goods and services are not enough. So they can buy the goods and services from other countries. Even developed countries also cannot able to produce the goods and services that they require. Likewise it sells their surplus products to other countries. India also buys from and sells the goods and services to countries. 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 insufficient quantities. Similarly, it can export goods, which are in excess quantity with it and are in high demand outside. Page 179

2 FOREIGN TRADE Meaning Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of Gross Domestic Product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Definition 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. IMPOTANCE OF FOREGIN TRADE Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is in principle not different from domestic trade as the motivation and the behaviour of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. International trade consists of export trade and import trade. Export involves sale of goods and services to other countries. Import consists of purchases from other countries. International or Foreign trade is recognized as the most significant determinants of economic development of a country, all over the world. The foreign trade of a country consists of inward (import) and outward (export) movement of goods and services, which results into outflow and inflow of foreign exchange. Thus it is also called EXIM Trade. FOREIGN TRADE REGULATIONS For providing, regulating and creating necessary environment for its orderly growth, several Acts have been put in place. The foreign trade of India is governed by the Foreign Trade (Development & Regulation) Act, 1992 and the rules and orders issued there under. Payments for import and export transactions are governed by Foreign Exchange Management Act, Customs Act, 1962 governs the physical movement of goods and services through various modes of transportation. To make India a quality producer and exporter of goods and services, apart from projecting such image, an important Act Exports (Quality control & inspection) Act, 1963 has been in vogue. Developmental pace of foreign trade is dependent on the Export-Import Policy adopted by the country too. Even the EXIM Policy lays its stress to simplify procedures, sharply, to further reduce transaction costs. NEW FOREIGN TRADE POLICY India to be made a significant participant in world trade by 2020 Merchandize exports from India (MEIS) to promote specific services for specific Markets Foreign Trade Policy Foreign Trade Policy (FTP) would reduce export obligations by 25% and give boost to domestic manufacturing FTP introduces two new schemes, namely "Merchandise Exports from India Scheme (MEIS)" and "Services Exports from India Scheme (SEIS)". The 'Services Exports from India Scheme' (SEIS) is for increasing exports of notified services. These schemes (MEIS and SEIS) replace multiple schemes earlier in place, each with different conditions for eligibility and usage. Incentives (MEIS & SEIS) to be available for SEZs also e-commerce of handicrafts, handlooms, books etc., eligible for benefits of MEIS. Page 180

3 Agriculture and village industry products to be supported across the globe rates of 3% and 5% under "Merchandise Exports from India Scheme (MEIS)" and higher level of support to be provided to process and packaged agricultural and food items under MEIS. Industrial products to be supported in major markets at rates ranging from 2% to 3% Served from India Scheme (SFIS) will be replaced with Service Export from India Scheme (SEIS). Branding campaigns planned to promote exports in sectors where India has traditional Strength. SEIS shall apply to 'Service Providers located in India' instead of 'Indian Service Providers'. Business services, hotel and restaurants to get rewards scrips under SEIS at 3% and other specified services at 5%. Duty credit scrips to be freely transferable and usable for payment of customs duty, excise duty and service tax. Debits against scrips would be eligible for CENVAT credit or drawback also. Nomenclature of Export House, Star Export House, Trading House, Premier Trading House certificate changed to 1,2,3,4,5 Star Export House. The criteria for export performance for recognition of status holder have been changed from Rupees to US dollar earnings. Manufacturers who are also status holders will be enabled to self-certify their manufactured goods as originating from India. Reduced Export Obligation (EO) (75%) for domestic procurement under EPCG scheme Online procedure to upload digitally signed document by Chartered Accountant/Company Secretary/Cost Accountant to be developed. Inter-ministerial consultations to be held online for issue of various licenses No need to repeatedly submit physical copies of documents available on Exporter Importer Profile. INDIA S FOREIGN TRADE PERFORMANCE India s foreign trade performance deals with export, import, trade balances, export of principles commodities and import of principal commodities. Table 1 shows export performance of India during the year to Table 1: Export Performance of India Year Oil Growth Non-Oil Growth Total Growth , , , , , , , , , , , , , , , , , , , , , , , , , , , * 3, , , TOTAL Source: RBI Statistics, * data are provisional It is observed from the Table1: clearly explains that export of oil and non-oil goods to the other countries. Oil export shows the highest growth rate of per cent in the year In the year Page 181

4 it has slightly decreased and thereafter it reveals continuous decline in the above period. Non-oil growth rate shows the highest percentage of in the year Thereafter it is also shows increased and decreased position in the above years. Chart 1: Export Performance of India 100% 80% Growth 60% 40% 20% 0% INDIA'S FOREIGN TRADE Export Total INDIA'S FOREIGN TRADE Export Non-Oil INDIA'S FOREIGN TRADE Export Growth INDIA'S FOREIGN TRADE Export Oil -20% Table 2: Import Performance of India Year Oil Growth Non-Oil Growth Total Growth , TOTAL Source: RBI Statistics, * data are provisional It is evident from the Table 2: shows that India buying oil and non-oil goods from the other countries. Among the study period the highest growth rate shows per cent in the year In the year it explains least percentage of and also it reveals no constant growth rate in the above period. Import of Non-oil goods depicts the highest growth rate of 38 per cent in the year Remaining of the year it shows declined position and in the year shows per cent which is the least one. Page 182

5 Chart 2: Import Performance of India 100% 80% 60% 40% 20% INDIA'S FOREIGN TRADE IMPORTS INDIA'S FOREIGN TRADE IMPORTS INDIA'S FOREIGN TRADE IMPORTS INDIA'S FOREIGN TRADE 0% INDIA'S FOREIGN TRADE -20% Table 3: Trade Balance of India s Foreign Trade Year Oil Growth Non-Oil Growth Total Growth TOTAL Source: RBI Statistics, * data are provisional It is found from the Table 3: depicts that trade balances of India s foreign trade explains the difference between export and import of oil and non-oil goods. Both of them show negative position in the above periods. Highest growth of oil trade balance reveals per cent in the year and lowest balance shows per cent in the year Non-oil trade balances also shows negative positions which per cent is the highest and in the year reveals per cent is the lowest one. Page 183

6 Chart 3: Trade Balance of India s Foreign Trade TRADE BALANCE Table 4: Export of Principal Commodities COMMODITY TOTAL Tea Coffee Rice Other Cereals Tobacco Spices Cashew Oil Meals Oil Seeds Fruits & Vegetables Cereal & Miscellaneous Items Marine Products Meat, Dairy And Poultry Products Iron Ore Mica, Coal & Other Ores Leather And Leather Products Ceramic Products & Glassware Gems & Jewellery Page 184

7 Drugs & Pharmaceuticals Organic & Inorganic Chemicals Engineering Goods Electronic Goods CottonYams/Fabs/M ade-ups, Handloom Products Man Made Yam / Made-Ups, Etc RMG of All Textiles Jute Mfg. Including Floor Covering Carpet Handicraft Excluding Hand Made Carpet Petroleum Products Plastic & Linoleum Other Commodities TOTAL Source: RBI Statistics, * data are provisional It is observed from the Table 4: shows that export of principal commodities to the other countries shows the highest sales of engineering goods which is Rs billion among the 31 products in the year to Sale of petroleum products shows Rs billion which is the second among the export of principal commodities. Export of Gems & jewellery Rs billion which is the third position. Export of Jute manufacturing including floor covering Rs billion which is the least sale of goods to the other countries among the principal commodities. Page 185

8 Table 5: Import of Principal Commodities COMMODITY TOTAL Cotton Raw Waste Vegetable Oil Pulses Fruits & Vegetables Pulp And Waste Paper Textile Yam Fabric, Made Up Articles Fertilizers & Crude Sulpher & Unroasted Iron Pyrts Metal ferrous Ores & Other Minerals Coal, Coke & Briquettes, Etc Petroleum, Crude & Products Wood & Wood Products Leather And Leather Products Organic & Inorganic Chemicals Dyeing/Tanning/Color ing Materials Artificial Resins, Plastic Materials, Etc Chemical Material & Products Newsprint Pearls, Precious & Semi-Precious Stones Iron & Steel Non-Ferrous Metals Machine Tools Machinery, Electrical & Non-Electrical Transport Equipment Projects Goods Professional Instrument, Optical Goods Etc Electronic Goods Medical & Pharmaceutical Products Gold Silver Other Commodities TOTAL Source: RBI Statistics, * data are provisional It is inferred from the Table 5: depicts that import of principal commodities to the other countries explains the highest buying of Petroleum, Crude & Products which is Rs billion among the imports Page 186

9 of products in the year to Buying of electronic goods from the world countries shows Rs billion which is the second among the import of principal commodities. Import of Machinery, Electrical & Non-Electrical goods shows Rs billion which is the third position. Import of Sulpher & Unroasted Iron Pyrts reveals Rs billion which is the least imported of goods from the other countries among the principal commodities. BALANCE OF PAYMENTS (BOP) Balance of Payments (BOP) of a country is an annual record of its monetary transactions with other countries of the world. It is an important index which reflects the true economic positions of falling in its external value. In other words, the Balance of Payments is a summary record of economic transactions between businessman, individuals, firms and government of any resident of one country and the rest of the world during a given period of time. Characteristics of Balance of Payments It is statement having two sides. It is a record of economic transactions. It shows a relation between receipts and payments. Visible and invisible both items are included in this statement It is prepared for a certain period of time. Balance of Payments Account Balance of Payments consists of two accounts namely current account and capital account. Current account includes Merchandise, investment income, amount received and paid by the Government, miscellaneous, transfer payments, total current transactions, errors and omissions and surplus. Likewise capital account includes short term as well as long term international borrowings and lending gold transactions taking place between countries. Capital account reflects the real monetary position of a country in the international market. Disequilibrium in Balance of Payments A country s Balance of Payment is in equilibrium when there is perfect equality between the supply and the demand for foreign exchange. A position of disequilibrium in the Balance of Payments exists when the demand for foreign exchange exceeds its supply, or vice versa. Types of Disequilibrium in Balance of Payments Secular Disequilibrium: It indicates the economic development of a country Cyclical Disequilibrium: It indicates the business fluctuations in a country Structural Disequilibrium: It indicates the changes of demand and supply of exports or imports. Causes of Disequilibrium in Balance of Payments Natural Factors: Natural calamities like flood, famines, draught etc. adversely affect agriculture and industries, causing Balance of Payments disequilibrium in Balance of Payments. Economic Factors: The operations of trade cycle may cause disequilibrium in the Balance of Payments An inflationary spiral within the country can also cause adverse Balance of Payments Large scale capital movements Lack of export promotion More imports Lack of import substitutions Unsatisfactory use of Foreign exchange Reserves Import control in developed countries Political Factor: political factor like instable government civil wars, wars etc. also adverse Balance of Payments. Measures to correct disequilibrium in BOP Automatic measures Deliberate measures Page 187

10 Trade measures Encouragement to exports Reduction in imports Monetary measures Devaluation Money contraction Exchange control CONCLUSION The present study concludes that, due to Globalization traders face more problems for selling of goods and services even though more benefit of that. Process of import and export are difficult one for every developing country. Government has encourage exporters to implement the specialize in production of principal commodities in which it possesses a comparative advantage by virtue of its climate natural resources, skill of its people and capital equipment etc. using of special ability of the country to provide particular commodity or services relatively more cheaply than the other commodities or services. The exports and imports of a country give rise to monetary transactions with other countries. Governments of individual countries may not be the best judges of what constitutes the best form of trade relationship, even for their own people, and certainly not for people of other nations. Some policies, such as drawbacks, have positives and negatives, but often individual segments of a society are left out of the benefits created by international trade. REFERENCES 1. Nagraj, R. (2003), Foreign Direct Investment in India in the 1990s: Trends and Issues,Economic and Political Weekly, Vol. 38, No. 17, April Desai, Padma, (1969), Alternative Measures of Import Substitution, Oxford EconomicPapers, November. 3. Cohen, B (1964), The Stagnation of Indian Exports, , Quarterly Journal of Economics, November. 4. Chanda, R., (2005a), Trade in Financial Services: India s Opportunities and Constraints, Working Paper No. 152, ICRIER, New Delhi. 5. Desai, Ashok, (2001), A Decade of Reforms, Economic and Political Weekly, Vol. 36, No.50 December 6. Sinha Roy, S. and Pyne, P.K. (2011). Exchange Rate Pass-Through and India s export Prices. Trade and Development Review, Vol.4, Issue 1, Sharma,K. (2003). Factors determining India s export performance. Journal of Asian Economics, 14, Soman, M. (2011). Manufacturing in Perspective ( ) & Prospects. Maharashtra Economic Development Council, Month Economic Digest, July The Ministry of Finance, Government of India. Union Budget and Economic Survey Reserve Bank of India Statistics Page 188