Foreign trade refers to trade between two or more countries of the world. All countries participating in international or foreign trade import those goods and services from abroad which they are less efficient to produce or can not produce at all. Similarly, they export those goods in the production of which they are more efficient due to their geographical condition and expertise of their labour force. In modern times there is no country, which does not participate in international trade, as no one cannot afford to be self-reliant.
During the British rule, India’s volume of trade was very low. It was forced to import less than her export. Thus there was a surplus trade balance which was used for transfer of wealth from the colony to Britain. The transfer of wealth increased salary payment to the British officials, interest on sterling loan and dividends on the British capital invested in India. The country was exporting only the primary products like tea, cotton, leather, jute and jute products, textiles and oil seeds. Its import was mainly finished consumer goods, machines, tools, chemicals and iron and steel. This clearly shows the characteristics of an underdeveloped country, where traditional items dominate the structure of its export. The direction of trade during this period was limited to England and other commonwealth countries. However, after independence, there has been a significant change in the India’s foreign trade.