Free Sample Essay on the Advantages of International Trade

International trade comes to the rescue of the people in times of natural calamity. During famine conditions in a particular country, foodstuffs can be obtained from the international market and lakhs of precious lives of the famine stricken people can be saved.

International Market.

There is large scale competition in the quality and price of goods among countries. The buyer countries buy the cheapest and the best goods. The U.S.A., France, Germany, the U.K., etc. produce and sell arms at cheaper rates due to mass production. The U.S.A. produces cheap cars on account of mass production. Similar is the case with Japan (cars), China (toys) and Switzerland (watches).

Many countries do not have raw material. This inhibits their industrial progress. These countries buy raw material from other countries and convert the same into finished products. This helps their international trade. Japan does not have cotton, iron ore etc. but by importing these raw materials from other countries, Japan has become one of the greatest industrial giants of the world.

Dependence on foreign trade is risky particularly during war days. Moreover, a country’s own industrial growth is retarded if it depends upon foreign industrial goods.

The Indian goods like spices, handicrafts, jeweler, textiles etc were marketed in some neighboring countries as early as 3000 B.C.

Time changed. So changed the volume, kind and direction of foreign trade. However, the real change occurred after independence due to the growth and diversification of the Indian economy.

Presently India exports more than 7500 items and imports nearly 6000 and has trade relationship with over 150 countries of the world. The foreign trade turn over in terms of rupees has gone up beyond imagination to a staggering figure of Rs. 4, 29,246 crores. (2000-2001)

India has been famous for its silks, spices, jewels, jeweler, artifacts, muslin, cotton cloth etc. since times immemorial. The coming of Europeans and Arabs by the silk route or sea is evidence enough of India’s attraction as a trading partner.

British reached here for trading but ended up ruling the country for about 200 years. It is during the British rule that the trade pattern was severely affected. India was reduced to raw material producing dominion and an importer of finished products from Britain or its other dominions.

By the time British left, two hundred years of subjugation had rendered India industrially backward. Production of most of the indigenous products like muslin, jeweler etc, which formed important part of export items, had been severely affected during the British rule. The country was totally dependent on British tore most of the manufactured goods.

Since 1950s, India’s foreign trade has had a negative balance of payments i.e., imports have always been more than exports, but the items on the import-export list have changed. Up to 1970s, India was importing food grains. Now the major import is crude oil and petroleum products. Over the years there has been a decrease in the share of tea, jute and coffee in the exports while computer software and project exports have become important.

India is the fifth largest economy in the world and has the second largest Gross Domestic Product (GDP) among emerging economies, based on Purchasing Power Parity (PPP). The Indian economy moved to a high growth path in the 1980s, with economic growth averaging 5.5% per annum through the decade.

With the adoption of a policy of reform and opening up in 1991, a spurt in economic growth was witnessed immediately. At present the savings rate is 25.6% of the GDP and inflation is below 6%. About 31% of India’s GDP originates in the primary sector, 28% in the manufacturing sector and41% in the services sector.

The private sector is the backbone of the economy, accounting for 75% of the GDP, whose share is increasing rapidly. Liberalization of the economy has increased the competitiveness of Indian firms and created exciting new opportunities for domestic and foreign investors.

Sweeping reforms continue in policies relating to virtually every sector of the economy – trade, industry, foreign investment, finance, taxation and the public sector. Having successfully achieved macro-economic stabilization, the economy is now clearly on the path of global integration, fast growth, improved productivity, innovation and international competitiveness.

Most controls on trade, foreign investment and foreign exchange have been relaxed or abolished. The Indian Rupee is now convertible on the current account and convertibility on the capital account is in the offing. Private participation is permitted in virtually all industries and foreign investment is generally treated at par with domestic investment. The Indian Government has set a target of attracting $ 10 billion worth of foreign investment every year. Foreign Investment is particularly welcome in the infrastructure sector.

A dynamic and outward looking trade policy is an important component of India’s economic reform programme. Recent liberalization measures include significant scaling down of tariff barriers, virtual dismantling of the system of import and export licenses, simplifications of procedures and the liberalization of the exchange rate mechanism.

India’s exports have been increasing at a rapid pace in the last few years. In value terms, exports have increased from Rs. 53,688 crores in 1992-93 to Rs. 2, 01,674 crores in 2000-2001.

A look at India’s trade profile reveals considerable diversity in both the composition and direction of imports and exports. Major exports include gems and jeweler, readymade garments, leather and leather products, drugs and pharmaceuticals, machinery and instruments, iron ore, marine products, transport equipment and tea.

These account for more than half of India’s total exports. The USA, Japan, Russia, Germany and the UK are major destinations. For imports, India’s major sources arc the USA, Germany, Saudi Arabia, Belgium and Japan.

India’s imports mainly consist of crude oil and petroleum products, edible oils, iron and steel, non-ferrous metals, fertilizers, capital equipment and rough diamonds. India also imports pearls, precious and semi-precious stones, machinery, inorganic and organic chemicals, artificial resins and plastics.

France, the UK, Belgium, Netherlands, Spain, Switzerland and Italy are the eight countries that account for most of the trade with Western Europe. The main items of export to this region are gems, jeweler, handicrafts, artifacts, tea, coffee, spices, leather goods, marine products, carpets, plastic/linoleum products, computer software, etc.

The main items of import from this region are semi-precious stones, gold, machinery, transport equipment, metal scrap, project goods, industrial technology, Defence equipment and pharmaceutical products.

Since most of the trade is restricted to these eight countries only, there is a great potential for developing trade relations with rest of the European Union and European Free Trade Association countries.

The major hurdle in this effort is the trade barriers put by EU countries in the form of anti-dumping, anti-subsidy investigations and countervailing duties, Government of India has initiated a dialogue with the first summit at Lisbon in June 2000 and the second at New Deli in November 2001. These summits and the new EXIM Policy 2002-2007 are a step towards improving trade relations and increasing India’s share in the international trade.

Eastern Europe

India has traditionally enjoyed close and multi-faceted relations with most of the East European countries like Russia, CIS States, Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic, Slovenia, Macedonia and Republic of Yugoslavia.

Erstwhile USSR was India’s single largest trade partner before its break up. In 1990-91, the total trade with Russia was to the tune of Rs. 7,803 crores and Rs. 3,360 crores with the other countries of Central and Eastern Europe. But the trade with this region is on the decline as shown by the figures in.

The main reasons of decline in trade are:

1. The transition from centrally-planned, socialist economics to market-oriented economies.

2. Collapse of old trade arrangements.

3. Severe liquidity constraints in these countries.

4. Fragmentation of markets.

5. High interest rates.

6. An increase in demand for sophisticated packaging and quality goods from other countries like China, Turkey and European Union.

Still, this region is an important trading partner and the main items of export to this region are cotton yarn, hosiery goods, fabric, garments, coffee, tea, transport equipment and others.

The principal imports from this region are heavy machinery, organic chemicals, project goods and iron and steel. The Indo-Russian bilateral trade accounts for 80% of the trade with this region. Therefore, there is a potential for further development of trade with the other European countries.

East Asia & Oceania

India has trade agreements with major countries like Japan, China, Taiwan, S. Korea, Australia, New Zealand, Malaysia, Indonesia, Vietnam, Thailand, Philippines, Cambodia and Myanmar. India is also a full dialogue partner of ASEAN. An ASEAN-

India Joint Cooperation Committee has been formed to give a boost to inter-regional trade. As a result the exports to this region have increased from Rs. 60,062 93 crore in 2000-01 to Rs. 75,899.96 crore in 2001-02. At the same time the imports declined by almost 18% in the same period.

The principal items of export are gems, jeweler, fabric, instruments, meat products, marine products, drugs, pharmaceuticals, semi-finished iron and steel, etc. The imports from this region arc technology, transport equipment, wood products, timber, raw wool, pulses, non-ferrous metals, coke and coal.

West Asia and North Africa

This region comprises of Saharan Africa and West Asia or Middle East and India has trade agreements with Egypt, Iraq, Iran, Jordan, Kuwait, Libya, Yemen, Israel, Saudi Arabia, Bahrain, Sudan, Morocco, Syria and Tunisia. This region is the largest oil producing and exporting region of the world. India imports huge quantities of crude oil from this region.

This region is also an important source of supply of some important agricultural and industrial inputs such as fertilizers and rock phosphate. During 1999-2000, exports from India to West Asian and North African countries were Rs. 21792 crores and imports were Rs. 55617.6 crore. During 2000-01, exports to this region from India amounted to 11s. 266784 crore and non-oil imports from this region amounted to Rs. 14683.2 crore. The balance of trade is not in favour of India because of import of very large quantities of crude oil.

This region is a potential market for Indian goods, particularly processed foods, drugs, pharmaceuticals, gems and jeweler. Pharmaceuticals, Infrastructure Development and Information Technology (IT) are the other sectors that hold promise for growth in exports to this region. In the new EXIM policy, joint commissions with some of these countries have been proposed for devising ways of improving and diversifying trade flows.

North America

The United States is India’s single largest trading partner. During 2000-2,001, India’s exports to the USA were Rs. 42,403.73 crore whereas the imports from the USA were Rs. 12,812.11 crore.

The exports have registered a growth of 16.72 per cent whereas the imports have declined by 17.04 per cent as compared to the previous year. India’s major exports to the US include gems and jeweler, RMG cotton including accessories, cotton yarn, fabric, made-ups, manufactures of metals, manmade fibres, handicrafts (excluding handmade carpet), etc. Major imports from the US include electronic goods machinery except electronic, other commodities and professional instruments.

India has very modest trade relations with Canada. During 2000-2001, India’s export to Canada were Rs 2,974.63 crore and the imports were of the order of Rs. 1, 764.06 crore. The exports registered a growth of 18.74 per cent and imports registered a growth of 6.99 per cent in the corresponding period of the previous year.

India’s major exports to Canada include RMG cotton including accessories, cotton yarn, fabrics, primary and semi-finished iron and steel, drugs, pharmaceuticals and fine chemicals, RMG manmade fibres, gems and jeweler. Major imports from Canada include newsprint, pulp and waste paper, pulses and non-ferrous metals.

The Indian trade with Mexico has grown consistently over the years. During 2000-2001, India’s exports to Mexico at Rs. 944.57 crore registered a growth of 54.72 per cent over the exports in 1999-2000.

South America

India’s exports to South America and Caribbean in year 2000-2001 were Rs. 4712.6 crore and imports from this region were to the tune of Rs. 3475.3 crore. The exports have registered a growth of 50.47 per cent while the imports from the region have declined by 22.70 per cent. Despite many constraints, India’s exports to the region have shown a healthy rate of growth in the recent years.

This is largely the result of trade and industry responding to the lowering of tariffs and non-tariff barriers in many of the Latin American countries and special thrust of the Government through the Foe us-LAC Programme to enhance trade with this region. Argentina, Brazil, Chile, Peru, Mexico, Panama, Colombia, Venezuela and Uruguay are India’s major export markets in the region.

Exports to the region include textiles and readymade garments, drugs and pharmaceuticals, engineering goods, two-wheelers, automotive components, diesel engines, hand-tools, leather, and leather manufactures dyes, intermediates, etc. Our imports from the region include crude minerals, iron and steel and their products, non-ferrous metals, metallic ores, vegetable oils, pulp and paper waste and raw wool. Sub-Saharan Africa

India has trade relations with a number of countries of this region. The main trading partners are South Africa, Nigeria, Mauritius, Ivory Coast, Tanzania, Kenya, Benin, Ghana, Ethiopia and Senegal. The exports to this region have increased by 34% since 1996-97, yet they accounted for only 4.08% of the total in year 2000- 2001. The major items of export to this region are cotton yarn, fabrics, garments, drugs, pharmaceuticals, chemicals, machinery and instruments, transport equipment, agriculture implements, tractors, iron and steel, plastic and linoleum products, and agro chemicals.

This region has tremendous potential for expansion of trade as the demand for Indian goods is very high due to competitive prices. Keeping this in mind a number of initiatives have been taken to promote bilateral trade relations with these countries. India has trade agreement with Burkina Faso, Ethiopia, Ghana, Angola, Cameroon, Ivory Coast, Kenya, Liberia, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Uganda, Zambia, Zimbabwe, Seychelles, Tanzania, Mauritius and Botswana. During the last two years India has signed three trade agreements with Mauritius, Tanzania and Botswana.

A number of meetings and discussions for trade and cooperation in specific sectors have been initiated in the recent times. Special provisions have been made in the EXIM policy for promotion of trade with African countries.