CHAPTER-IV

THE COMPOSITION AND DIRECTION OF INDIA'S FOREIGN

TRADE

4.1 Introduction

4.2 The size of India's Foreign Trade

4.3 Composition of Exports

4.4 Composition of Imports

4.5 Direction of Trade

4.6 Conclusion
 CHAPTER-IV

THE COMPOSITION AND DIRECTION OF INDIA'S FOREIGN

TRADE

4.1 Introduction:

Foreign trade has played a vital role in India's economic growth. In fact the growth and
development of exports earns valuable foreign exchange for the country. Before 1947,
when India was a colony of the British, the pattern of her foreign trade was typically
colonial. At that time, India was a suppliers of foodstuffs and raw materials to the
industrialized nations particularly England and in importer of manufactured goods.
With the down of independence, India decided to emphasize on a program of
development required to extend its production capacity at a faster rate.

However for about 40 years (1950-1990), foreign trade of India suffered from strict
bureaucratic and discretionary controls. Begimiing 1991, the Government of India
introduced a series of reforms to liberalize and globalize the Indian economy. The
major trade policy changes in the post 1991 period included simplification of
procedures, removal of quantitative restrictions and substantial reduction in the tariff
rates. Globalization has also resuhed in the creation of a new business framework.
Today India has trade relations with all the major trading countries and all the
geographical regions of the world. Over the years, India's trade with countries of Asia
and ASEAN and African has gone-up substantially. Apart from that. India is now a
major player in global trading system and all the major sectors of Indian economy are
linked to world outside either directly or indirectly through foreign trade.

Generally, India's exports cover a wide range of items in agriculture, industrial and
services sectors. Besides, project exports which include consultancy, ci\'il construction
and turnkey contracts etc. have also made a significant progress in recent years.
Computer software exports have grown at a faster pace durins; the last decades in India.
Imports have also increased substantially, the bulk of which comprise crude oil,
petroleum projects, fertilizer, engineering and techno logs, precious and semi-precious
stones, capital goods, raw materials, consumables and intermediaries for industrial
119
production.

Thus underdeveloped countries like India's have been exporters of foodstuffs and raw
materials. As economic development proceeds exports of raw material increase
because their demand increases at home to meet the requirements of domestic
industries. The exports of foods growth are declines with growing population. As a
result a developing country like India is required to find new commodities and
raw markets in which it can sell its manufactures.

Thus, over the last 65 years, India's foreign trade has undergone a complete change in
terms of composition and direction. Under this chapter, we will study the composition
and direction of foreign trade of India as well as export or import policy trend of
export or import in five years plan of the country.

4.2 The size of India's Foreign Trade

Since the initiation of economic reforms India's outward orientation has increased
considerably. The destination patterns of Indian exports has remarkably changed in
the sense that the importance of developing countries as an export market has
considerably increased. The government is trying to transform the economy into a
vibrant outward looking; liberalized market economy driven by the forces of
competition, productivity and efficiency by the various economic reforms but the
country has not been able to fijlly utilize its potential in foreign trade. India's share in
global trade did not rise as impressively and the commodity structures of India's
exports remained almost unchanged until the mid-1990s. The major trade policy and
economic reforms are changed in the post 1991 period. Responding to the various
reform process, the foreign trade sector has gained considerable strength, resilience and
stability. During 2001 to 2010, the size of India's foreign trade has increased. It is a
complete change. Now foreign trade covers a wide range of various traditional and
non-traditional items. At present, India is enjoying her foreign trade because o f its
increasing volume.

India's total exports and imports from the year 1991-92 to 2009-10 are given in table
no. 4.1.

120
 Table No. 4.1

India's Foreign Trade (Rs. in Crore)

Year Exports Trade Import Trade Total Trade

1991-92 44,042 47,851 91,893 -3,809

1992-93 53,688 63,375 1,17,063 -9,687

1993-94 69,751 73,101 1,42,852 -3,350

1994-95 82,674 89,971 1,72,645 -7,297

1995-96 1,06,353 1,22,678 2,29,031 -16,325

1996-97 1,18,817 1,38,920 2,57,737 -20,103

1997-98 1,30,101 1,54,176 2,84,277 -24,075

1998-99 1,39,753 1.78,332 3,18,085 -38,579

1999-2000 1,59,561 2,15,236 3,74,797 -55,675

2000-01 2,03,571 2,30,873 4,34,444 -27,302

2001-02 2,09,018 2,45.200 4,54,218 -36,182

2002-03 2,55,137 2,97,206 5,52,343 -42,069

2003-04 2,93,367 3,55,108 6,52,475 -65,741

2004-05 3,75,340 5,01,065 8,76,505 -1,25,725

2005-06 4,56,418 6,60,409 11,16,827 -2,03,991

2006-07 5,71,779 8,40,506 14,12,285 -2,68,727

2007-08 6,55,864 10,12,312 16,68,176 -3,56,448

2008-09 8,40,755 13,74,436 22,15,191 -5,33,681

2009-10 8,45,534 13,63.736 22,09,270 -5,18,202

Source : 1) DGCIRS, Kolkata. 3) RBI. Handbook of Statistics on the Indian

Economy, 2008-09, 11) RBI, Bulletin, 4) www.izoogle.com.

121
The above data of foreign trade of India during 1991-92 to 2009-10, revealed as under.

• Imports as well as exports have grown over the period.

• Imports have exceeded exports every year.

• The amount of trade deficit has increased during the given period.

The above data reveals that by and large of reforms in liberalization and globalization
policies, a significant development in the cun-ent account of the exports and imports in India.
The data shows that beginning of the 1991-92, there were only Rs. 44,042 crores export and
Rs. 47,851 crores imports of India. Which were 19.20% i.e. 20 times more increased in
exports amount and reached Rs. 8,45,534 crores during 2009-10. As well as 28.50% i.e. 30
times more percent's increased in imports and reached Rs. 13,63,736 crores during same
period. Every year, exports and imports volume were increased gradually. The Balance of
Trade is always minus, it means India's has faced deficit in its Balance of Trade. This was
characteristics of a developing country strugglmg for reconstruction and modernization of its
economy.

4.3 Composition of Exports

4.3.1 Introduction:

Export growth after 1991 was much more impressive and India's exports grew nearly as
rapidly as those of the countries classified as fast growmg exporters of agriculture and
manufactures. One further feature of the growth in exports over this later period was the
diversification in terms of commodities and foreign markets. Although nontraditional items
(Gems and Jewellery, Readymade garments. Engineering goods and Chemicals) have entered
into India's exports in a big way yet traditional items of exports, viz. marine products, tea,
coffee, spices and coir occupy a dominant place m our export basket. These items have been
the backbone of India's export efforts for long. Recent trends, however, indicate that the
commodity structure of India's exports has slowly began to shift towards higher technology
intensive manufactures.

122
4.3.2 Pattern of Exports:

Generally exports of India are broadly classified into four groups.

1) Agriculture and allied products, which include tea, coffee, spices, sugar, raw
cotton, rice, oil cakes, tobacco, cashew, fish and fish preparation, meat and meat
preparation, vegetable oils, fruits, vegetables and pulses.

2) Ores and minerals include manganese are mica and iron ore,

3) Manufactured goods include textiles and readymade garments, jute, leather and
footwear, handicrafts including pearls and precious stones, chemicals, engineering
goods and iron steel, and

4) Mineral fuels and lubricants.

The pattern and composition of export trade during 2001 to 2010 has marked two
trends,

a) Among commodities which were directly or largely based on agricultural

production but however exports did not improve on the whole, and

b) Significant increases were achieved in the exports of new technological

manufactures and products but these were not sufficient to offset the decline in the
traditional exports. Besides, there is a growing realization across Asia and Africa that
the experience of Indian exporters. There is also need to obtain a major share of all
commodities in SAARC and European Union, American and Japanese regions
through intensive marketing to secure foreign trade relations among these countries.
India's ranking in both exports and imports improved in 2004 and it became the 30'*'
leading merchandise exporter and 23"' leading merchandise importer in the world.

Below are the data which shows the share of India and other selected countries in world
exports by the table no. 4.2

123
 Table No. 4.2

Share on India and Other Select Countries in World Export (Percent)

Sr. No. Country Share in World Exports

2000 2010

1 China 3.9 10.5

2 Korea 2.7 3.1

3 Hong Kong 3.2 2.6

4 Russia 1.7 2.7

5 Singapore 2.2 2.3

6 Mexico 2.6 2.0

7 Taiwan 2.3 1.8

8 India 0.7 1.5

9 Malaysia 1.5 1.3

10 Brazil 0.9 1.3

11 Thailand 1.1 1.3

12 Indonesia 1.0 1.0

13 South Africa 0.5 0.5

14 Emerging and developing 25.4 39.1

15 Developed Countries 50.3 29.0

World 100.0 100.0

Source : Government oflndia. Economic Survey, 2011-12, P. 155.

The above data reveals that India's share in world exports increased from 0.7 percent in 2000
to 1.5 percent in 2010. This data shows that export growth after 2000 was much more
impressive and India's expons grew nearly as rapidly as those of the countries classified as
fast growing exporters in v\ orld exports.

124
Today so many changes have taken place in India's foreign trade sector mainly in
composition and direction. Export growth and development after 1971 was much more
impressive and grew nearly as rapidly as those of the countries classified as fast growing
exporter of manufactures. One more characteristics of the growth in exports over this later
period was the diversification in terms of commodities and foreign markets.

The composition and direction of India's foreign trade has undergone substantial changes,
particularly after the liberalization process which began in the early 1990s. Our major
exports now includes manufacturing goods such as engineering goods, petroleum
products, chemicals and allied products gems and jewellery, textiles, electronic goods,
etc. which constitute over 80 percent of her exports basket. On the other hand major import
items constitute capital goods and intermediates which not only support like manufacturing
sector but also supplies raw materials for the export oriented units. Over the years India's
trade with countries of Asia and ASEAN and Africa has gone up substantially. Apart fi-om
that, India is now a major player in global trading system and all the major sectors of Indian
economy are linked to world outside either directly or indirectly through international
trade. The following table no. 4.3 shows the merchandise exports and imports and balance
oftrade of India.

Table No. 4.3

Exports, Imports and Balance of Trade (Value in US $ Billion)

Year Merchandise Growth Merchandise Growth Balance

2001-02 - - - - -

2002-03 52.7 16.9 61.4 16.3 -8.7

2003-04 63.8 21.1 78.1 27.2 -14.3

2004-05 83.5 30.9 111.5 42.8 -28.0

2005-06 103.1 23.5 149.2 33.8 -46.1

2006-07 126.4 22.6 185.7 24.5 -59.3

2007-08 163.1 29.0 251.6 35.5 -88.5

125
 2008-09 185.3 13.6 303.6 20.7 -118.3

2009-10 178.6 -3.6 268.8 -5.5 -108.2

Source : DGCI and S. Kolkata, India-2012, MOIB, New Delhi, 56"" edition, 2012,
P. 182)

From the above table no. 4.3 revealed that merchandise exports touched US$ 178.6 billion
on 2009-10 with a decline of-3.6%. Besides, merchandise imports also chmbed US $ 268.8
billion in 2009-10 with a decline of -5.5%. The balance of trade also shows decline of
108.0 billion. However exports for the year ending March 2011, touched US $ 245.9 billing
registering a growth of 37.5%. For the first time the figures have reached the US $ 200
billion mark which was target set for last financial year. Imports for the same period stood at
US $ 350.3 billion and the trade deficit figure has come down to US $ 104.4 billion.
Items which registered significant growth are engineering goods, petroleum products during
and pharmaceuticals readymade garments, carpet, jute, leather, agricultural exports and allied
sectors including tea, coffee, tobacco, spices, cashew, oil meals, fruits and vegetables and
marine products.

4.3.3 Exports of Principal Commodities

The exports performance of principal commodity groups during the 2001 to 2010 are
reviewed in the following description.

4.3.3.1 Agriculture and Allied Products:

Agriculture is the mainstay of the Indian economy. Agriculture and allied products
contributes nearly 14.4 percent of gross domestic product (GDP) of India. Agriculture and
allied products comprises a wide variety of agriculture products covering pulses,
cereals, pulses, nut, vegetables, fruits, guar gum meal, dairy products, meat and meat
products, spices, sugar, molasses and tobacco etc.

According to data reveled that during April to November, 2002 the exports of this group
showed a marginal increase of 0.09 percent from Rs. 10,084 crores during April to
November, 2000. As well as. in the year 2002-03 and 2003-04 exports of agricultural and
allied products registered 15.62% and 1.24% change respectively, i.e. from 5572.1 US $
million in 2002-03 to 5641.1 US S million in 2003-04. The items which have indicated a
significant increase during 2003-04 as compared to the corresponding period of previous year

126
are cotton raw including waste, fresh fruits and vegetables, cereals, groundnuts, sesame and
Niger seeds and wheat etc. Exports growth was also impressive in the agricultural sector
during the study period.

The following table no. 4.4 shows the annual exports of principal commodities from 1990-91
to 2010-11.

Table No. 4.4

Annual Exports of Principal Commodities

No. Items 1990-91 2000-01 2007-08

1 Coffee 252 II85 1868

2 Tea 1070 1789 2022

3 Fruits and Vegetables 335 8433 3063

4 Cotton yam and manufactures 2100 15819 I8I62

5 Leather and leather manufactures 2566 8883 13816

6 Iron ore 1049 1639 23130

7 Tobacco 263 8672 1929

8 Engineering goods 3877 31150 147845

9 Readymade Garments 4012 25441 38215

10 Handicrafts (Including Gems & Jewellery) 6167 36756 80992

11 Fish and Fish preparation 960 6367 6855

12 Rice 462 2932 11731

13 Chemical and allied Products 3558 26889 82347

14 Cashew Products Kernel 447 2054 2235

Source: 1) RBI, Handbook of Statistics on Indian Economy (2005-06) 2) Economic

Survey (2()()7-()8)

127
4.3.3.2 Gems and Jewellery:

Gems and Jewellery and Jewellery is a major export item of India which is accounting for
about 17.53 percent of our total exports during April to November, 2000. The exports of
Gems and Jewellery during April to September 2002-03 was valued at Rs. 21,687 crores as
compared to Rs. 15,787 crores in 2001-02, showing a robust growth of 37.37 percent. As
well as gems and Jewellery exports grew by 10.4 percent to $ 8.1 billion during April -
January, 2003-04. In addition growth of exports of gems and Jewellery a major contributor to
India's exports accelerated in April to October 2005, with USA the largest market accounting
for 25 percent of such exports from India.

According to data, its share in total exports was 15.06% in 2006-07 which was decreased to
12.64% and to 12.08 in 2006-07 and 2007-08 respectively. However it has recorded
increase in the years 2008-09 (15.29%) and 2009-10 (16.27%). Export growth of this segment
has been below the overall commodities exports growth rates on an average. According to the
gems and Jewellery export data nearly 80 percent of exports is on account cut and
polished diamonds white plain gold Jewellery contributes roughly 15 percent to exports.
Destination wise the major markets for Indian gems and Jewellery in terms of importance are
the US.Ai. UAE Hong Kong, Belgium, Japan. UK, Israel, Korea and Singapore. The gems
industry is growing at about 20% annually compared to gold Jewellery. In addition, India is
also big exports hub for processing diamonds and other precious stones. Gems and Jewellery
EPC is project mg export growth rate of rounding 10 percent.

4.3.3.3 Textiles :

Under this group yarn, fabric, made-ups, readymade garments etc. are including.
Traditionally, India has had a comparative advantage in textiles but the share of this item
is India's total exports are gradually decreasing over the years.

The total value of Indian textile exports during 2002-03 went .up to Rs. 26,192 crores from
Rs. 22,903 crores during the corresponding period of 2001-02 showing a positive growth of
14.36 percent exports of handicrafts increased to Rs. 1,807 crores during April to September
2002-03 from Rs. 1,323 crores during the corresponding period of 2001-02 showing a
growth of 36.58 percent. The increase in exports of manmade yam, fabrics, and made-ups
was significant at 19 percent during April to Jan 2003-04. '

During 2009-10. textiles accounted for 2.22% of India's total exports. Textiles i.e. cotton
yarn, fabrics, made-ups, handlooms products etc. has decreased steadily over the years
128
from 2005-06 to 2009-10 (from 3.83% to 2.22%). In addition, Textile Ministry has increased
projection for 2004-05 to double digit growth levels since all export quotas are to aims to
increase the value of textile and apparel exports to US $ 50 billion by 2010.

4.3.3.4 Readymade Garments:

In recent year readymade garments have shown significant improvement. These exports
were just Rs. 9 crores in 1970-71 they jumped to Rs. 196 crores in 1974-75. In 2000-01
readymade garment accounts for approx. 42 percent of the total textile exports of the country.
They represent value added and less import intensive sub-sector, thus deserving a special
place. Total exports of readymade garments in 2003-04 were 2061-49 US $ million. During
2007-08 cotton apparel exports were Rs. 38215 crores. However share of textiles in exports
of all commodities was 24.91 percent in 2002-03 where in 2003-04, it is 20.97 percent."

Indian readymade garments and manmade fiber textile industry has a large production base
industry which is complemented by self-sufficient raw material production base. After
independence, this sector has unlimited potential as compared to textile industry. At presents,
India also offers and exports of the entire range of nylon, Teri cotton, polyester, viscose,
acrylic and blended textile items and its readymade garments. Thus, this item is the single
largest contributor to exports in the textile sector.

4.3.3.5 Iron Ore:

India exports iron ore. India's earned about Rs. 30 crores per year from iron ore during first
five year plan 1951-52 to 1955-56. During 1970-71 exports of iron ore cross to Rs. 117
crores and touched Rs. 231.30 crores during 2007-08. Although India's iron ore exports
has increased by leaps and bounds in the last few years, a slowdown in the export growth for
iron ore was observed in 2005-06 which further it showed a sudden increase in growth during
2007-08 (32.52%) a negative growth was recorded again in 2008-09 (7.16%)). However, in
2009-10 the growth was again positive by 30.57%.

This is an unhealthy growth development. India should increase the share of steel in exports
by utilizing iron ore in her own steel plants. Export of total finished steel (non-alloy + alloy)
during 2010-11 (provisional) was 3.46 million tonnes, compared to the 3.25 million tonnes in
2009-10, a growth of 6.5 %. According to data available from various sources Iron ore is also
major important export item of India. Its share of total exports gradually increasing. It has
recorded exports m 2005-06 Rs. 16829 crores, in 2006-07 Rs. 17,658 crores, m 2007-08 Rs.
23,400 crores, in 2008-09 Rs. 21,725 crores and in 2009-10 Rs. 28,366 crores in total exports.
129
4.3.3.6 Leather and Leather manufactures:

Leather and leather manufactures products including manufactured goods. This is the
traditional items of Indian exports in raw hides and skins. But recently in the exports of this
items the proportion for leather and leather manufactures to raw hides and skins is on the
increase. This is really a healthy development. India touched Rs. 486 crores in 1979-80 and
cross further to Rs. 13,816 crores during 2007-08.

It we show the data of one decade from 2001 to 2010, its exports showed stagnation. The
accumulated data of share of exports of leather and leather manufactures has been gradually
and continuously declining from 4.28% in 2001-02 to 1.84% in 2009-10. For this data and
information we say that the leather and leather manufactures sectors is amongst the top 10
foreign exchange earner for the India. Even though the impressive growth witnessed by the
leather sector is encouraging but however there are several components which create great
challenges like competition from China, Pakistan and Bangladesh and also the rising prices
of chemicals or inputs required by the leather and leather manufactures industry. The Council
for Leather export is projecting growth rate around 10 percent.

4.3.3.7 Tea and Coffee:

Tea and coffee are traditionally important item i.e. barrage of Indian exports. Tea had the
first position in our exports in recent years. The average armual exports of tea were Rs. 106
crores during first five year plan 1951-52 to 1955-56. Tea exports further picked up to touch
Rs. 195 crores in 1960-61. But later, they declined, tea exports earned Rs. 1,132 crores
during 1991-92, but its contribution rose to Rs. 2,022 crores in 2007-08. Coffee exports
have been rising more or less steadily during period 2001-2010. The share of tea exports
also showed stagnation over the last 10 years (between 0.3% to 0.4%)

In addition, share of export has been gradually and continuously increasing from Rs. 1731
crores m 2005-06, Rs. 1970 crores in 2006-07, Rs. 2034 crores in 2007-08, Rs. 2689
cores in 2008-09 and Rs. 2944 crores in 2009-10 respectively. Coffee is substitute of tea,
which is also important item in India's export basket. It has recorded Rs. 1589 crores in
2005-06. Rs. 1969 crores in 2006-07, Rs. 1872 crores in 2007-08, Rs. 2256 crores in 2008-
09 and Rs. 2032 crores in 2009-10 respectively. The main markets for these items are
developed countries and emerging economies.

4.3.3.8 Engineering Goods:

130
An exports of engineering goods comprising transport equipment, machinery and parts and
manufactures of metals, remained key drivers etc. According to data prescribed in the table
no. 4.4, which shows the most important item group exported by India in 2007-08, and
2009-10 were "Engineering Goods""' with value of exports Rs. 1,45,845 crores in and Rs. 1.5
lakh crores respectively and accounting for 18.15% and 18.25% of India's total trade exports.
The exports of this category "Engineering Goods"" also include electronic goods and
computer software. In total exports of India engineering goods exports were also secured
good result so this is a commendable export achievement of India. However, total exports
share of electronic goods and computer software has also recorded a marginal growth over
the last two years 2008- 09 and 2009-10 compared to more or less same level it recorded a
few years prior to 2008-09.

At present, engineering industry and particularly manufacturer exporters in engineering

sector are facing serious problem of skilled manpower. The plant and machinery are
becoming more and more high tech and the required level of skill is badly missing. As well
as freight constitutes a substantial portion of the cost of engineering exports. In many cases
it account between 20 to 25 percent of the total cost of exports. Besides, the last few
decades the industry is also suffering fi^om severe technological obsolescence and lack of
economies of scale.

4.3.3.9 Handicrafts.

Traditionally, India is the best country, who has produced varieties of handicrafts and artistic
crafts in the world. The export of Indian handicrafts assumed great significance after the
Independence specially in 1960's and 1970"s. In 1970-71, there were only 70 crores exports
of handicrafts, which increased to Rs. 120 crores in 1972-73 and stood at Rs. 29,330 crores
in 1998-99. At present India is the only one country in the world, who exports this type of
item. During 2007-08 handicrafts exported were of the order Rs. 80,992 crores.

Besides, during to 2010 India ranks number one in terms of value as well as in volume of
exports of handicrafts goods such as handmade carpet etc. During 2005-06, 2006-07, 2007-08,
2008-09 and 2009-10, India's export of handicrafts and handmade carpet Rs. 2,045 crores,
Rs. 1982 crores, Rs. 2046 crores, Rs. 1384 crores and Rs. 1067 crores, respectively.
However, India's handicrafts and handmade carpet exports has decreased during 2005-06 to
2009-10. No doubt, handicrafts and handmade carpet has a huge potential for growth.
Today, India has around 29 percent share of the world market and mostly US is largest
importer of the total exports of handicrafts and handmade carpets.
131
4.3.3.10 Chemicals and Allied Products.

Basic chemicals (Drug, Pharmaceuticals and fine chemist and other basic chemical combined)
are an area in which India's is consistently doing well as far as exports are concerned.
Although, India's supplier of quality chemicals at most competitive price in the world, it
does not have its own chemical inventory and chemical management programme. In 1990-
91, 2000-01 and 2007-08 basic chemical and allied products accounted Rs. 3558 crores,
Rs. 26899 crores and Rs 82347 crores respectively. After engineering goods chemical and
allied products are second exports item in exported goods items from India. In addition
government is banking on a 10 percent growth in chemicals and allied products during the
fiscal. Besides, during 2001 to 2010 basic chemical have replaced readymade garments from
the fourth most important source of foreign exchange earner of foreign exchange of India. In
2006-07, basic chemical contributed around 8.67 percent of India's total value of export.
According to data available basic chemicals accounted for around 24.1 percent, 11.7percent,
24.1 percent and 2.8 percent growth from the previous year 2006-07, 2007-08, 2008-9 and
2009-10 respectively.

4.3.3.11 Petroleum products:

However some product gained more than the others. Exports products i.e. petroleum products
gained both in terms of growth rate as well as share in the export basket.

In April-March 1999-2000, the exports of petroleum and crude products were Rs. 129.91
crores. In the year 2000-01 it reached to Rs. 8,646 crores and to Rs. 10,107 crores in 2001-
02. Exports of petroleum and crude products were S 2.8 billion against $ 1.9 billion in April,
January, 2002-03 and increase of 46.3 percent. "*

Besides, due to increase of petroleum prices globally the value of import of petroleum
products has also increased. India have been imported petroleum products from almost Saudi
Arabia, Iran, Kuwait, Nigeria, Iraq and UAE have combined shares of 71.68%, 70.09% and
62.25% of the total imports of petroleum products in 2007-08, 2008-09 and 2009-10
respectively.

4.3.3.12 Information Technology Sector:

Software or Information technology has been identified as a thrust area by the Government
of India both for exports as well as in the domestic sector. Under this sector of Information
technology, computer hardware-software and telecommunication equipment etc. are

132
comprised. The impact of liberalization and globalization of foreign trade on high
technology goods is the development of efficient basic information technology sector in
India through which the basic equipment and knowledge related services are supplied to the
worldwide. At present, India also supplies highly skilled professionals for IT sector in
international market. As well as hardware and software maintenance, network administration
and help desk services etc. are also provided by the India in huge volume to the needed
nations. India's share in the world software and services market has increased to 2.4 percent
in 2003-04 and compared to 2.09 percent in 2002-03 and 1.82 percent in 2001-02. ^

The govenunent of India has also promoted IT sector by providing various facilities. The
government has also implemented ITAI agreement in April, 2005 with the zero duties for the
ITAI items and greater international competition for the hardware sector. At present, IT
production development has to focus on the combined hardware-software sector and
production for domestic sector along with exports. We concluded that IT sector has very
wide fiiture so it can hope that IT stands its position with increasing way in the world
knowledge economy.

Hence it concluded that India's exports have shown a steady trend towards higher technology
based commodities. India's specialization in exports lies in manufactured based on labour
and natural resources essentially involving low technology. Therefore the government
should reconstruct the structure of foreign trade especially in the field of manufactured
goods and agricultural based products. Although, of late India has been shifts its structural
and composition about exports. So the trend of India's exports indicates that the Indian
economy is diversified its importance. The large expansion of engineering goods is partly
pickup demand in industrial countries, while some commodities which have tremendous
exports potential, have fluctuated widely. But armouncement of various policies and
strategies by the government, the agriculture products. Suits, vegetables and processed foods
are boosting significantly in our exports.

4.4 Composition of Imports:

4.4.1 Introduction:

The composition of India's imports has undergone changes since the opening up of the
Indian economy. India adopted an inward looking development strategy after
independence wherein import substitution constituted a major elements of both trade and
133
industrial policies. Import substitution was the prime objective of India's trade policy till the
mid - 1970s. This policy was largely based on the Imports and Export (Control) Act of
1947 and Import Trade Control order of 1955. Import substitution was significant in the
area of industrial machinery, chemicals, paper, iron, steel and non-ferrous metals.

In India, imports have been now classified into two groups -

a) Bulk Imports and

b) Non bulk Imports.

a) Bulk Imports - Bulk imports are further sub divided into three components

i) Petroleum, Crude and Products

ii) Bulk consumptions goods, which comprises of basic raw materials, intermediates and
foodstuff i.e. cereals and pulses, edible oil and sugar and

iii) Other bulk items comprising of fertilizers, paper and paper boards, rubber, pulp and
waste paper, metallic ores, iron and steel.

b) Non-bulk Imports : Non bulk imports are also further classified into three
components.

i) Capital goods, which includes metals, machine, tools, electrical and non- electrical
machinery, transport equipment and project goods.

ii) Mainly export related items consist of pearls, precious and semi-precious stones,
organic and inorganic chemicals, textile yam and fabrics, cashew nuts.

iii) Others include artificial resins and plastic materials, professional and scientific
instruments, coal and coke, chemicals, medical and pharmaceutical products, non-metallic
mineral manufactures etc.

However, there was unwillingly raising trend of imports in India. The main reasons are both
internal and external factors. During the 1970s as a result of the sharp like in petroleum oil
prices by the OPEC first during 1973-74 and then again in 1979-80, the value of POL
imports rose sharply not only during the seventies by its impact was feh even during the
eighties as well and the policy of liberalization adopted by the government. All these
factors, led the larger dependence of the economy on imports.

134
Under liberalization and globalization, the government of India follow a restrictive import
policy, that policy consisted of dividing imports into three categories. A) Free b)
Restricted and c) Prohibited. Import of food, capital goods, the raw material of industry
and certain essential consumer goods were free and no exchange restrictions were placed
upon their import. Consumer goods which were not absolutely essential were licensed on a
quota basis while other which in the context of the economy of India were regarded as totally
unessential and luxury imports were ahogether prohibited.

As well as, government was the reduction in import duties. For that the broad approach to
reforms regarding customs tariffs and exemptions was laid out in the Report Tax Reforms
Committee, 1991. The peak rate came down progressively from 150 was laid out in the
Report Tax Reforms Committee, 1991. The peak rate came down progressively from 150
percent in 1991-92 to 25 percent in 2003-04 and the peak rate of customs duty on non-
agricultural goods was further reduced to 20 percent. After successive downward
revision, the peak rate of duty for financial year 2012-13 is 10 percent. With the external
sector gathering strength, along with reduction in tariffs, government of India has been
following a policy for gradual removal of restriction on imports since 1991.

Besides reveals that while petroleum still continues to have a dominant presence in India's
imports, capital goods and other intermediary products for export purpose have emerged as
key items of imports. However there have been a number of subtle compositional shifts
within the broad level of aggregation in recent years. For example within the petroleum
imports, there has been a shift from import of petroleum products towards crude import
following a large scale increase of refinery capacity over time. Furthermore, India has
transformed itself from a net importer of finished petroleum products to net exporter of the
same.

4.4.2 Commodity wise composition of India's Imports:

Below are the some major commodities which create composition of India's Import trade.
There have been a number of commodities which indicates composition of India's imports
trade.

4.4.2.1 Agricultural Imports:

India has large agricultural import both in terms of consumer goods and food grain in pulses,
edible oils and other commodities. There is need to rationalize fertilizer pricing and
production policy to encourage efficiency in use of consumption and production, so that
135
dependence on imports is reduced. In recent year edible oils accounting for nearly 60 to 65
percent of the value of total agriculture imports, has become the single longest import item.
Raw cashew, nuts (ahnonds from US) and pulses are among the other dominant agriculture
imports. Of late, the share of agriculture import in total imports of the country has hovered
around 4 to 5 percent.

The import of food grains were necessitated by the partition of the country and the growing
demand for food for the rising population. During 1987-88, food grains worth Rs. 66 crores
were imported but during 1992-93 Rs. 1,240 crores food grains were imported. Even during
2006-07 food grains worth Rs. 4036 cores imported. In the year 2007-08 food grains imports
were just Rs. 182 cores. ^

Since April 2000, the Government of India has lifting of quantitative restrictions on imports
of a number of agriculture products which includes fruits, juices, ketchups, meat products
etc. Monitoring of 300 sensitive product imports has so far revealed that such imports are
limited and, in the aggregate, constitute a small proportion of total agriculture imports. For
that government has been providing a fair level of protection. But we know that India has
large agricultural imports both in terms of pulses, edible oils and other commodities. So
that there is very essential to rationalize fertilizer pricing and production policy to encourage
efficiency in use of consumption and production of agriculture product so that dependence on
agriculture imports is reduced.

136
4.4.2.2 Petroleum oil and Lubricants (POL)

Imports of petroleum and lubricants (POL) are also on the increase. India is short in the
supply of mineral oils, especially petroleum. There have been a number of subtle
compositional shifts within the broad level of aggregation in recent years. For example,
within the petroleum imports, there has been a shift fi-om imports following a large
scale increase of refmery capacity over time. Furthermore, India has transformed itself
from a net importer of finished petroleum products to net exporter of the same.

On account of the sharp increase in the prices of crude oil, aimounced by the
Organization of Petroleum Exporting countries, during 1980-81, imports of petroleum
and lubricating worth of Rs. 5,264 crores. The value of imports rose sharply from Rs.
94,520 crores in 2003-04 to Rs. 320655 crores i.e. about 31.7 percent of total imports.
Further, it can be seen that POL group had a share of 30.19% in India's total imports
during 2009-10 with Rs. 411649 crores of import values.

4.4.2.3 Pearls and Precious Stones:

Pearls, Precious and Semi-Precious Stones, or rough diamonds are mostly imported
India for the making of Jewellery for export purpose. Indian gem and .Jewellery
industry could source roughs directly from Russia, Zimbabwe and Namibia. However,
these efforts need to be pursued with great momentum and an aggressive policy needs
to be developed to ensure continuous supply of rough coloured gems stones from
countries like Russia, Brazil, Tanzania and Myanmar. In India's gem and Jewellery
industry is an import based industry which requires special arrangements i.e. foreign
currencies and consignment etc. for its marketing and infrastructure. So it is necessary
to allow special consignment import of rough diamonds by the Government of India.
Under special consigrunent system, both the cut and polished and rough diamonds are
imported from across the world and are assorted in different lots according to the cut
and polished size and displayed for auction. Further after binding, diamonds are taken
by the bidder and the unsold diamonds are re-exported back.

The import of pearls, precious and semi-precious stones averaged Rs. 417 crores
during 1980-81 have fiirther increased to Rs. 22100 crores during 2000-01. we mean
in that half part of these import related to raw materials for diamonds and rest of half
part or 50 percent imports as raw materials for the handicrafts export industry. It may
be noted the exports of pearls and precious stones were of the order of Rs. 79,142

137
crores during 2007-08 as against an import of Rs. 32108 crores. The percentage
shares of this item group was 9.12% in 2003-04 but subsequently dropped in 2004-05
(8.55%), 2005-06 (6.12%), 2006-07 (4.03%) and 2007-08 (3.17%). In addition it was
Rs. 76678 crores (5.62% of the total imports) in 2009-10 and Rs. 76,130 crores
(5.54%) in 2009-10 and Rs. 76,130 crores (5.54% of the total imports) in 2008-09.

4.4.2.4 Chemicals, drugs and medicines:

Chemicals, drugs and medicines commodities are including in other un bulk

commodities which are also account increasable trends. The annual average of these
items was about Rs. 55 crores during the Third Plan (1961-62 to 1965-66). Imports of
chemicals, drugs and medicines rose to Rs. 113 crores per armum on the average
during the fourth plan (1966-67 to 1968-69). During 1981-81 and 1984-85 annual
average imports of this item rose to Rs. 660 crore. It further rose to Rs. 1,868 crores
during 1985-86 and 1989-90. They rose further to Rs. 13,278 crores during 2007-08
on the average. Besides, chemical material and pharmaceutical products (15.15%)
have positive growth on imports during 2009-10.

4.4.2.5 Fertilizers:

Fertilizers are other bulk items which share in imports has been fluctuating according to
domestic demand. With following the adoption of the new strategy m Indian
agriculture, the imports of fertilizers were stepped up and steel decreased till 2000-
01, although it increased these after, share of capital goods show a consistent declining
trend. With a sharp increase in the international prices of fertilizers, fertilizers
imports rose to Rs 818 crores in 1980-81 and further short up to Rs. 3,234 crores in
2000-01. As a consequence of liberalization fertilizers imports were of the order of Rs.
21,765 crores during 2007-08. During 2009-10 however fertilizers have negative
growth (-46.69%).

4.4.2.6 Machinery:

Machinery is capital goods in which electrical and non electrical equipment as also
locomotives. After Independence in a country which is rapidly industrializing her
economy, imports of machinery are bound to increase. Compared to the average
annual import of machinery which was about Rs. 260 crores during 1960-61 the
annual average during the Third Plan (1961-62 to 1965-66) rose to Rs. 472 crores.
Machinery imports were nearly Rs. 1350 crores per annum during 1980-81.
138
Machinery imports further went up to Rs. 92,006 crores during 2007-08. Further it
constitutes 7.29% to total merchandise imports during 2009-10. Ahhough there was
positive armual growth of 28.43% for electronic goods imports in 2008-09, it has
declined by 7.20% in 2009-10. Thus, electronic machinery and electronic goods
imports will increase unless India establishes a domestic fabrication facility and
dramatically expand domestic production of these items.

4.4.2.7 Metals :

Metals are other bulk items under this group, ferrous and non-ferrous metals, ores
metal, scrap iron and steel etc. are includes. India imports iron and steel and also some
non-ferrous metals. The annual average imports of ferrous and non-ferrous metals
which were about Rs. 54 crores during the First Plan have gone up steadily with
every plan and were about Rs. 2,450 crores during 1985-86 and 1989-90. Imports
of metals on such a large scale are necessitated by the vast programmes of industrial
expansion, developments of railway and hydro-electric projects. With improvement in
capacity utilization of our steel plants, imports of iron and steel should be cut
down. During 2007-08, metal worth Rs. 80,956 crores were imported accounting for
8.0 percent of total imports. As well as, iron and steel (-10.19%) nonferrous metals (-
46.56%) and machine tools (-24.24%) etc. have negative growth of imports in 2009-
10.

Thus, the composition or structure of imports are concluded as that rapid growth of
industrialization necessitating increasing imports of capital goods and raw materials;
growing imports of raw materials on the basis of liberalization of imports for export
promotion and decline imports of food grains and consumer goods due to the country,
become self-sufficient in food grains and other consumer goods through agricultural
and industrial growth. As well as rapid growth in Petroleum, Oil and lubricants due to
sharp rise in international prices and fast increase in domestic demand.

It is expected that crude petroleum would continue to have the highest share, followed
by other metallic (including gold and silver) and non-metallic minerals -chemicals
machinery and transport equipment's. Import of food items is projected to be relative
low except edible oils. The highest growth in import during the Tenth Plan is likely to
be from communication and electronic equipment's. Followed by electrical and non-
electrical machinery, edible oils, non-metallic minor minerals, tea and coffee and
leather and leather products.'
139
At last, it has concluded that, with the increased competitiveness and globalization of
Indian industry and economy, imports of low and medium technology mtensive
products have declined. It has positive impact of imports on Indian economy after
2000-01. As well as there is growing evidence that accession imports has a positive
impact on the growth performance of the country. The behaviour of aggregate
import demand in the country is expected to be strongly driven by domestic growth etc.

4.5 Direction of Trade

4.5.1 Introduction:

The direction of India's foreign trade studies would be classify into America, Europe,
Asia and Oceania and Africa grouping. However, before independence, India's
trade relations were continued mainly to Britain and other commwealth countries. Over
the last 65 years significant changes have taken place in India's direction of
foreign trade. During one to two decades, USA, Germany, Japan, Russia, and Middle
East countries have emerged as major foreign trade partners of India. However
direction of India's foreign trade remained largely unchanged until the mid-1990"s but
after, India's direction of trade have shown a steady trend towards with higher volume.

As regards the changes in the destination of India's exports the Tenth Five Year
Plan (2002-07) observed, "Looking at the direction of these exports, it was observed
that the share of our exports to the organization for Economic Co-operation and
Development (OECD) countries has been declining, especially due to decline in our
share to the European Union (EU) and Japan share of exports to USA has
increased and so has to the OPEC and Latin American countries. It has gone down in
the case of Eastern Europe, with slowing down of exports to Russia, while shares of
exports to less developed countries in Africa and Asia have remained more or less at
the same level. Exports to 'Other' countries have increased and need to be flirther
stepped up.

After, the adoption of liberalization and globalization in India, a market diversification

strategy based on the changing dynamics of growth in the world economy is
necessary to ensure sustained growth of exports of India. So that, India has must
apply various market strategy for development end of foreign trade. For that, India
would have to focus on various other markets in Asia (including ASEANj^Africa
140 /6^Sl$b
and Latin America as well as other developed and developing countries. Since the
initiation of economic reforms in India, India's foreign trade has increased
considerably. The destination and direction pattern of Indian foreign trade has
remarkably changed after economic reforms especially during the research period 2001
to 2010, in the sense that the importance of developing countries as an export market
as well as volume of trade has considerably increased.

However, there are many obstacles for that India has not been able to fully utilize its
potential in foreign trade especially in exports matter. In aggregate, India's share in
global trade has not increased as impressively and the commodity structure and
direction of foreign trade remained almost unchanged until 1990's. During 2001 to
2010, the position of foreign trade of India has slightly improved and direction and
destination of foreign trade also increased. Historically, India had close trade relations
with U.K. and also other countries of Europe. In 1950-51, 31.5 percent of the total
Indian imports were from Europe. India trade also with East European Countries viz.
USSR, Poland, Romania, Bulgaria, Hungary, East Germany, Czechoslovakia and
Yugoslavia developed in during the Sixties. In 1960-61, India imported 9 percent of
her total imports from this region and exported about 8 percent of her total to this
region. But soon after the Indo Chinese war in 1962 and Indo Pak war in 1965, trade
relation with these countries remarkably increased.

During 1951-52, India's trade with the Asia and Oceanic has been of great
significance. India's exports of these countries were about 28 percent which were
increased 32 percent in 1969-70. As well as the share of Japan and Australia in India's
exports was 15 percent in 2007-08. Similarly, imports from these two countries have
also declined from 9.2 percent to 6 percent during the same period. In the connection
of OPEC countries, due to increasing importance acquired by the import of crude oil,
OPEC countries have assumed very great significance in India imports. Due to the
sharp hike in the price of crude oil and allied products, India's imports were
increasing year by year widely. The export to OPEC countries increased from 6.4
percent in 1971-72 to 16.5 percent in 2007-08 but the hike of oil prices of petroleum
has again pushed up the share of OPEC to 32.7 percent in 2007-08. India has also a
great potential for increasing her foreign trade with Asian countries. This evidenced by
the fact that during 2006-07, imports from this region accounted for 26.8 percent of
India total imports and exports to this region increased from 10.8 percent during 1970-
71 to a high level of 31.5 percent in 2007-08.
141
It we studies, the foreign trade with Africa, India exports have remained more or less
constant to a level of about 6.7 percent during 1951-52 to 1970-71 but declmed
thereafter and stood at 7.6 percent in 2007-08. However, on the impojt side, the share
of African countries has been fluctuating from 9 percent since 1951-52 but it has
declined to a low level of 4.3 percent in 2007-08.

4.5.2 Destination of Foreign Trade:

Before Independence India's foreign trade relations were confined mainly to Britain
and other Commonwealth countries. Over the last 65 years significant changes have
taken place in India's direction of foreign trade or exports and source of imports. USA,
Germany, Japan, Russia and Middle East Countries have emerged major trade partners
of India.

With regard to the changes in the destination of India's exports, the Tenth Five
Year Plan (2002-07) observed the direction of these exports. It was observed that
the share of our exports to the Organization for Economic Cooperation and
Development (OECD) Countries has been declining, especially due to decline in our
share to the European Union (EU) and Japan. Share of exports to USA has increased
and so has to the OPEC and Latin American countries. It has gone down in the case of
Eastern Europe, with slowing down of exports to Russia, while shares of exports to
less developed countries in Africa and Asia have remained more or less at the same
level. Exports to other countries have increased and need to be fiirther steeped
up."^

Following table no. 4.5 shows the relative significance of various country groups
in India's exports for the year 2010-11

142
 Table No 4.5

Direction of India's Foreign Trade (S US Million)

Country 1987-88 2007-08 2010-11

Exports % Exports % Exports % Exports % Exports % Exports %

1) OECD 7,122 58.9 10,266 59.8 61,669 38.8 75,835.5 31.7 84,600 33.2 1,05,30229.9

2) OPEC 742 6.11 2,277 13.3 26,174.4 16.5 76,146.6 31.8 54,733 21.5 1,19,11733.8

3) Eastern 2,001 16.6 1,640 9.6 3,380.7 2.1 5,278.2 2.2 2,973 1.2 5,606 1.6

4) 1,719 14.2 2,967 17.3 67,199.9 42.3 80,624.6 33.6 1,05,693 41.6 1,15,23932.7
Developing

5) Others 504 4.2 6 - 582.7 0.3 1,765.6 07 6,403 2.5 7,311 2.0

Total 12,088 100 17,156 100 1,59,006.7 100 2,39,650.5 100 2,54,402 100 3,52,575 100

Source : RBI, Handbook of Statistics on the Indian Economy, 2007-08, 2010-11, Tables,
129,131,135 and 136.

The data of above table 4.5 reveals that maximum amount of export were 7,122 US$
million from OECD Countries, which occurred 58.9 percent exports in total exports $ US
12,088 million. Besides Easter Europe was showed $ US 2001 million (16.6 percent) exports
in total $ US 12,088 billion exports. The number of countries with when India has export
relation are increasing steadily but a major portion of India's exports go to OECD countries
i.e. 58.9 percent in 1987-88 and 33.2 percent in 2010-11. The OECD countries buy most of
traditional as well as non-traditional commodities from India.

The following table no. 4.6 shows, the direction of India's foreign trade during 1987-88 and
2007-08.

143
 Table No. 4.6

Direction of India's Foreign Trade (SUS Million)

Region/ Country 1987-88 2007-08

Exports % Imports % Exports % Imports %
I. OECD 7,122 58.9 10,266 59.8 61,669 38.8 75835.5 31.6
A) European 3,034 25.1 5,707 33.3 32181.5 20.2 33.57.4 13.8

i) France 292 2.4 615 3.6 2539 1.5 2838.7 1.2

ii) Belgium 374 3.1 1,057 6.2 4199.5 2.6 436.9 1.8
iii) Germany 817 6.8 1,665 9.7 5088.1 3.2 9571.02 4.8
iv)UK 783 6.5 1,410 8.2 6579.7 4.1 4957 2.1
v) Italy 384 3.2 373 2.2 3908 2.3 3875.4 1.6
B) North 2,380 19.7 1,774 10.3 31964.8 13.8 15135.1 6.3

i) Canada 127 1.1 230 1.3 1264.4 0.8 1933.8 0.8

ii)USA 2,252 18.6 1,544 9.0 20700.4 13.0 13201.3 5.5
C) Other 1,708 14.1 2,784 16.2 4879 3.1 13146.2 5.5

i) Australia 138 1.1 388 2.3 1148.6 0.7 7837 3.3

ii) Japan 1,245 10.3 1,640 9.5 3572.4 1 1 6323.7 2.6
iii) Switzerland 157 1.3 182 1.1 158 0.2 9827.7 4.1
11) OPEC 742 6.1 2,277 13.3 26174.4 16.5 76146.6 32.7
i) Iran 107 0.9 111 0.6 1942.6 1.2 10485.'^ 4.6
ii) Indonesia 21 0.2 54 0.3 2058.1 1.3 4823.7 2.0
iii) Saudi Arabia 214 1.8 590 3.4 3581.7 22 19401.2 8.1

144
 iv) UAE 239 2.0 588 3.4 15365.1 9.7 13470.6 5.6

III. Eastern 2,001 1.7 1,640 9.6 3380.7 2.1 5278.2 2.2

i) Russia 1,514 1.3 1,240 7.2 939,7 0.4 2475.1 1.0

IV. Developing 1,719 14.2 2,967 17.3 67199.9 42.3 80624.6 33.6

a) Asia of which 1,443 11.9 2,077 12.1 50080.0 31.5 64125.6 26.8
1. People 15 0.1 119 0.7 10781.6 6.8 27079.8 11.3

2. Hong-Kong 344 2.8 93 0.5 6304.6 4,0 2696 1.1

3. South Korea 112 0.9 257 1.5 2850 1,8 6030.9 2.5
4. Malaysia 70 0.6 648 3.8 _ „ _ _
5. Singapore 210 1.7 323 1.9 _ _ _ _
SAARC 313 2.6 75 0.4 8986.1 5.7 2125.4 0.9
b) Africa 9 _ _ _ 12043.9 7.6 10354.4 4.3
c) Latin America 33 0.3 387 2.3 5075.3 3.2 6144.7 2.6
V. Others 505 4.2 6 _ 582.7 0.4 1765.6 0.7
Total 12.088 100.0 17.156 100.0 159006.7 100 239650.5 100

* Data for German Democratic Republic are included in Germany t Provisional

Note : Figures in brackets are percentage of total in the corresponding column.

OECD : Organization for Economic Co-operation and Development.

E : European Union includes Belgium, France, Germany, Italy, Netherlands and

U.K.

OPEC : Organization of Petroleum Exporting Countries which includes Indonesia, Iran,

Iraq, Kuwait, Saudi Arabia and UAE.

SAARC : South Asian Association for Regional Co-operation which includes India,
Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka and Maldives.

Source : RBI, Handbook of Statistics on the Indian Economy (2007-08) and

reclassified from Economic Survey, (2007-08).

The above table 4.6 and preceding explanation on India's composition and direction of
foreign trade indicates considerable improvement since the initiation of the economic
145
reform process. At the same time, it is also clear that foreign trade performance of
the country has not been able to fUUy utilize the potentials of foreign trade is the
increase in the number of countries from whom we sell or buy. Since independence the
number of countries with whom India has foreign trade relation has gone up.

From the following table no 4.7 India's major trading partners (2000-2005) were
disclosed the information.

Table No. 4.7

India's Major Trading Partner During 2000 to 2005 (Percentage Share in total
trade (Exports + Imports)

Sr. Country 2000-01 2001-02 2002-03 2003-04 2004-05

1 USA 13.0 13.4 11.6 11.1 10.0

2 UK 5.7 4.6 4.6 3.6 3.7

3 Belgium 4.6 4.7 4.1 3.7 3.4

4 Germany 3,9 4.0 3.8 3.5 3.6

5 Japan 3.8 3.2 3.1 2.6 2.4

6 Switzerland 3.8 2.4 2.6 3.2 3.3

7 Hong Kong 3.7 3.1 3.3 2.8 3.0

8 UAE 3.4 3.8 5.1 5.6 5.4

9 China 2.5 4.2 4.9 5.6 6.4

10 Singapore 2.5 2.5 3.0 3.3 3.7

11 Malaysia 1.9 1.9 2.1 1.9 1.4

Total (Ito 11) 48.6 47.9 48.1 46.8 46.4

Source : DGCI&S, Kolkata

The above table shows the share of the II major trading partners of India, accounts
for a share of around 48.6 percent India's trade during 2000-01. Since 2000-01, it has
not changed much percentage of total trade with India i.e. 46 to 49 percentage.

146
If we study the another table no. 4.8 which shows the India's major trading export partners
during 2006-06 to 2009-10

Table No. 4.8

India's Major Trading Export Partners During 2005 to 2010

Sr. Country 2005-06 2006-07 2007-08 2008-09 2009-10

1 UAE 8.33 9.52 9.59 13.11 13.41

2 USA 16.83 14.93 12.71 11.47 10.93

3 China PRP 6.56 6.56 6.56 5.07 6.47

4 Hong Kong 4.34 3.70 3.87 3.61 4.41

5 Singapore 5.26 4.80 4.52 4.49 4.25

6 Netherland 2.40 2.11 3.21 3.44 3.58

7 UK 4.91 4.45 4.11 3.61 3.49

8 Germany 3.48 3.15 3.14 3.47 3.03

9 Saudi Arab 1.76 2.05 2.28 2.73 2.19

10 France 2.02 1.66 1.59 1.64 2.13

11 Belgium 2.79 2.75 2.58 2.42 2.10

12 Japan 2.41 2.75 2.58 2.42 2.10

Source : www.google.com

From the above table no 4.8 reveals that USA contmues (i.e. 2005-06 to 2008-09) to be the
single largest trading partner of India, but its share has fallen continuously from 2005-
06 to 2009-10. The third place, stood China RRP. However its trading accounted declined
gradually during the 2005-06 to 2009-10. Mainly China was contributed by ores, ash, iron and
steel and organic chemicals on the export side and the electrical goods, electrical machinery,
electrical equipment's, other machinery and organic chemicals on the import side. During
these period. Hong Kong is stand in fourth position which share of exports trade with
India at declined way. From Singapore. N e t h e r la nd. UK, Germany, Saudi Arab,
France and Belgium were declined eraduallv dunnt; 2005-06 to 2009-10. The data reveals

147
from the above two tables, that a major portion and percentage of India's foreign trade with
tliese major trading partners or with the developed economies, which larger by belonging
to OECD countries. Next main partner of India's foreign trade are the OPEC, there after
only other developing countries belonging to Asia, Alrica, Latin America and Caribbean.

Hence, India is now in a position to take advantage of both favourable demand situation and
attractive price situation in international markets. So the most striking trend in the direction
of foreign trade of India is the increase in the number of countries from whom we buy
and sell. Since 1947, the number of foreign trade partners' countries with when India was
foreign trade relation has gone up. The countries which were foreign trade of negligible
amount at that time, have now become significant. At present, India has foreign trade
relation with most of countries of the world; this shows the well signals of direction in
foreign trade of India

4.5.2.1 USA:

United States of America (USA) is India's largest trading partner. India and USA continued
to deeper and expand their global strategies partnership and relation in various sectors. For
better and strengthen relation share of foreign trade has increased between both countries. In
the early days of independence, USA was the second largest trade partner of India, behind
UK. It account for nearly 20 percent of India's exports and 6.55 percent of imports. On the
other side, India accounts only about one percent of USA exports and imports.

The following table no 4.9 shows India's exports to and imports from USA.

148
 Table No. 4.9

India's Foreign trade with USA (in S US million)

Year Export Growth (%) Import Growth (%)

2000-01 9305.12 10.80 3015.00 -15.31

2001-02 8513.34 -8.50 3149.62 4.46

2002-03 10895.76 27.90 4443.58 41.08

2003-04 11490.11 5.45 5034.86 13.31

2004-05 13265.60 15.45 6291.49 24.96

2005-06 76828.00 16.83 859.00 6.34

2006-07 85368.00 14.93 53105.00 6.32

2007-08 83388.00 12.71 84625.00 8.36

2008-09 96458.00 11.47 84848.00 6.17

2009-10 92417.00 10.93 80584.00 5.91

Source : DGCl&S, Kolkata

From the above table show that during the period 2000-01, India's exports to USA
were US $ 9305.12 million registering a growth of 10.80 percent. In 2004-05, it was US
$ 13,265.60 miUion with the growth of 15.45 percent from the previous 2003-04. In the
year 2009-10 the share of exports to the USA was US$ 92417 million with the growth
10.93 percent. While imports from the USA during the period April - March 2000-01,
shows -15.31 percent. In 2004-05 it was US S 6291.49 million. The share of India's
imports from USA was US $ 80,589 million, which was 5.91 percent. It was revealed
from the data that the exports were decline after 2005-06 and imports were also
declined in 2008-09. During the whole research period, the exports and imports were
stagnated. As well as USA was contributed 11.6 percent share in total trade i.e.
exports and imports in 2003-04. During 2004-05 (April-October) was also, USA
contributed 3.7 percent in total trade.

Thus however the maximum foreign trade in India is done with USA, through Indo-
American trade relations have been di\LMsely affected due to imposition of
American trade laws like Super-301 and Special-301 during past 3-4 years. The

149
Government of India has however not made any change in its trade poHcy with USA.
Today this foreign trade has reached on 16.7 percent USA is in top in exports and
imports with India.

4.5.2.2 U.K.

U.K. is the second import country, having foreign trade relationship with India from
1950-51. With the great starting of new important suppliers, the U.K. has ceased to be
the most important country and its share has declined to 6.3 percent if the total
imports in 2000-01. This country was the important buyer of Indian goods in the early
days of independence, at that time, U.K. was shared 23 percent of India's total exports
but in 2003-04 the U.K. share fell to a low of 4.7 percent.

During April-November 2001, and April-November 2002, U.K. accounted US $ 1453.7

million and US $ 1676.3 million exports from India. In 2005-06 share of export was
Rs. 22,399 crores. From 2005-06 to 2008-09 the exports trade with U.K. were
increased i.e. Rs. 22,399 crores, Rs. 25,421 crores, Rs. 26,967 crores and Rs. 30,345
crores. It accounted 4.91%, 4.45%, 4.11% and 3.61% share to total exports. But in
the year 2009-10 the exports amounts was declined and it was Rs. 29,476 crores,
which was 3.49% share to total exports.'"

4.5.2.3 China:

Both India and China are developing countries but China is growing of a much faster
rate than India since one decade. The relationship with China is a maximum propriety
in Indian foreign policy. The economic growth rate from 1990 onwards has been
account 10 percent as compared to India's growth of about 6 percent. In Internal
markets China is flooding with its industrial and electrical goods and is a preferred
destination for foreign institutional investors. The trade data and information shows
that China's aggressive growth strategy, its size, its success in exports indicated that it
must be recognized as a serious deterrent to India's merchandise exports as it has
become the largest foreign trade in Asia with its two way exchange of totaling 1,100
billion dollars. Its imports from the rest of Asia mostly raw materials and components
have been rising and its main exports of value added goods and equipment's to
specially to richer countries, as a result, today, China become a regional
manufacturing hub. At present China's growth and development is attracting foreign
investment and graining global market share are the envy for the world. The total

150
trade with China has reached at US S 19 biUion and setting a trade target of US S
biUionby2010.

There are also bilateral relations between China and India. Both countries are
committed to resolve the outstanding issues. Since, 1990 interaction between the
foreign trade and economic activities of India and China have been increasing and
bilateral trade volume has also grown even faster till date. Everybody knows that in
South Asia, India has become China's largest trading partners. In 2000, between the
trade volume was shot up to US $ 2,910 million in comparison with US $ 1,988 million
with the year 1999.

The most important thing is that the share of exports values and percentage share to
total exports grew up from 2005-06 to 2009-10. According to data disclosed. In the
year 2005, India-China bilateral trade grew by 37.6 percent. During this period, India
maintained its position as China's 16'^ bigger export destination accounting for 1.17
percent of China's export volume. During the year 2005-06 to 2009-10 the China PRP
exports and imports exposed from following table no. 4.10

Table No. 4.10

India's Exports & Imports bilateral Trade for the period of 2005-06 to 2009-10

Year Exports Percentage share to Imports Percentage share

2005-06 29,925 6.56 48,117 7.29

2006-07 37,530 6.56 79,009 9.40

2007-08 43,597 6.65 109,116 10.78

2008-09 42,661 5.07 147,606 10.74

2009-10 54,714 6.47 146,049 10.71

Source : www.google.com on 2012, December 20.

From the above table re\ealed that during last five years i.e. from 2005-06 to 2009-10
shows that the most thirst destination of India's exports was China after UAE and USA
during 2009-10 with accounted to Rs. 54,714 crores with 6.47 percentage share to total
exports. However in terms of annual growth rate of China during 2005-06 to 2009-10
151
were below 10%. It shares between 5% to 6% of exports in the total exports during
these years.

While in the connection of imports with China, the data revealed that imports from
China remained consistently maximum during these periods. Although, the above
all percentage shares of imports from China was less than 10 percent in the initial two
years i.e. 2005-06 and 2006-07 viz., 7.29% and 9.04% but after that from 2007-08 to
2009-10 it was around 11% i.e. 10.78%, 10.74% and 10.71%. This situation shows
that the importance of Chinese goods in Indian market as the shares of imports from
other major countries.

4.5.2.4 Canada:

India and Canada continued their relationship and global strategies from long time. As
a result, India-Canada bilateral trade relations acquired a new momentum in the current
decade with broad based progress in various sectors including trade and investment,
agriculture science and technology.

India and Canada foreign trade growth trends since 2000-01 were shown in the
following table no. 4.11

Table No. 4.11

India's Trade with Canada (in US$ million)

Year Export Growth Import Growth Balance of

2000-01 656.47 13.52 397.07 4.35 259.40

2001-02 584.82 -10.92 529.43 33.28 55.38

2002-03 698.27 19.40 566.29 6.96 131.98

2004-05 816.16 6.94 738.47 1.79 77.69

2008-09 1364.41 - 2458.65 - -

2009-10 1122.77 -17.71 2097.35 -14.70 -

Source : Gupta K.R., Indian Economy, Atlantic Publishers & Distributors Ltd.,
New Delhi, Vol. II, 2010, P.594.

From the above table shows the scenario during 2000-01 to 2004-05, India's has
152
maintained exports but however the growth percentage of total exports was gradually
decreased by 13.52 percent to 6.94 percent. In the year 2004-05 were US S 816.16
million accounting a growth of only 6.94 percent over the previous year 2003-04, when
it was US $ 763.20 million. In addition, the share of India's export to Canada out
of India's global exports during 2004-05 was only 1.03 percent as against 1.20 percent
during 2003-04. While India's imports from Canada were US $ 656.47 million during
2000-01, accounted the growth of 4.35 percent over the previous year. However
during 2004-05, it was US $ 738.47 million, which shows the growth rate of only 1.73
percent. From 2000-01 to 2004-05 the volume of imports amounts were increased but
the percentage of growth rate were fluctuate i.e. increased and decreased.
According information revealed that imports from Canada operated merely 0.69
percent of India's total imports. News print, pulses, fertilizer manufactures pulp and
waste paper and electronic goods etc. goods are imports from Canada by India during
the research period.

4.5.2.5 European Union (EU) :

The European Union comprises of 27 member states. The European commission i s

the administrative body for the European Union having the competence to negotiate
trade and investment agreements. Both countries are strategic partners whose
relationship is founded on various aspects. Both countries had regular interaction at
various levels. India and EU proposes to liberalize trade in goods services and
speed up investment for better relation and promotion of foreign trade.

Due to this the foreign trade between 60' countries could scale to new heights. Since
bilateral agreement between both countries maintain healthy economic and
commercial relations. Both countries are built various committees and agreements for
growth promotion of foreign trade between both countries. At present, EU is India's
largest trading partner and the second largest investor in India. As well as, the
inbound tourism in India is also dominated by the European travellers.

With the great friendly and cordial relations EU and India shared foreign trade in great
volume. Actually India's growing economy and its large market offer and are keenly to
build on existmg ties and move their bilateral relationship with India to higher level.
As well as India and EU .loint Action Plan which has adopted in 2005 and reviewed
in 2008 covers sound relations between India and EU. European countries buy goods
from India that include tea, oil, cakes, leather and leather manufactures etc. As
153
well as cotton, readymade garments including accessories, gems and Jewellery,
cotton yarn, fabrics, drugs, pharmaceuticals, machinery and instruments are the
major items of export to EU. Besides, pearls and precious and semi-precious stones,
machinery, electric goods, organic chemicals and transport equipment are the major
item of import to EU. These all activities show that India and the EU countries
maintain healthy economic relation, individually as well as collectively.

4.5.2.6 Africa :

Since independence India had cordial and friendly trade relations with countries in
Sub-Saharan Africa (SSA) Region, consisting of Eastern .Western, Central and
Southern Africa. Approximately 5 percent of India's total trade was made with this
region during the year 2002-03. However, due to distance, language barriers and lack
of information about business opportunities on both sides, the trade has been low. It is
concentrated mainly in 10 countries, viz. Nigeria, South Africa, Tanznia, Mauritius,
Ivory Coast, Kenya, Senegal, Ethiopia, Ghana and Benin. India's trade with SSA
(Sub-Saharan Africa) since 2001-02 is given in the table no. 4.12 below:

Table No. 4.12

India Trade with Africa (in US $ million)

Year Exports Imports Total Trade

2001-02 2161.03 2112.58 4273.61

2002-03 2451.77 2883.61 5335.38

2003-04 3076.69 2735.05 5811.74

2004-05 4963.39 3226.01 8189.40

2005-06 6760.23 8720.27 15480.50

2006-07 8417.53 11362.76 19780.29

2007-08 11539.57 14927.98 26467.55

2008-09 11390.82 18904.34 30295.16

2009-10 10307.79 20715.10 31022.89

Source : DGCT & S, Kolkata.

The table already shows that total trade with Africa region during 2001-02 amounted to
154
u s $ 4273.61 million with exports amounting to US $ 2161.03 million and imports at
US $ 2112.58 million. The foreign trade during the periods was increased. In 2009-10,
the total trade was US $ 31022.89 million with exports were US $ 10307.79 million
and imports were 20715.10 million. It shows the positive result of foreign trade
with Sub Saharan African region. Mainly cotton, yarn, fabrics, drugs and
pharmaceuticals, metals, machinery and instruments, transport equipment's, iron and
steel, plastic, organic and agro chemicals are the major items of exports. Besides, gold,
coke, ores, metal, scrap, pearls, precious stone, inorganic chemicals, fertilizers and
crude oil are the major items of import. At present India has made Bilateral Trade
Agreement with 23 countries of Sub Sahara Africa to promote trade with theriL For
the better of foreign trade relation the focus Africa porgramme was also launched on
31^' March, 2002 when EXIM policy for the period 2002-07 was aimounced, in order
to enhance the trade with Sub Saharan African countries.

Besides, a number of export promotion activities were conducted by various Export

Promotion Councils and Apex Chambers; a mega event 'The India Show" was held in
South Africa from 29"" August 2010 to f September 2010. Another major event,
"Namaskar Africa" organized during 14"^ to 15* October 2010 at Nairobi, Kenya.

4.5.2.7 The United Arab Emirates (UAE):

The growth of trade between India and UAE has been grown consistently at a good
pace over the years. Today UAE is the major import and export destination for the
petroleum products for India. Traditionally, India had a comparative advantage in
petroleum products but the share of this item in India's total exports is gradually
increasing over the years. As afready mentioned, due to increase of petroleum prices
globally. As a resuh, the value of import of petroleum products has increased in
comparison of exports value of petroleum product.

The data reveals that UAE is the most listed country among petroleum products
supplies countries i.e. UAE is hold six place from top twenty major countries who
supplies petroleum products to India. During 2007-08, UAE exports Rs. 31,372 crores
petroleum (i.e. 9.78%) to India. In 2008-09 and 2009-10 UAE exports Rs. 46,084
crores (10.97°'o) and Rs. 30,342 crores (7.37%) petroleum to India.

In addition India's exports were UAE during the year 2009-10 exceeded one lakh
crores. The exports to UAE grew only 2.83% in 2009-10 as compared to huge growth

155
(75.20%) in 2008-09. During 2008-09 and 2009-10, UAE was the top destination
country for exports for India, (www.google.com 20*'' December 2012.)

4.6 Conclusion

Since the initiation of economic reforms India's foreign trade direction and
composition has changed considerably. The destination pattern of Indian foreign trade
i.e. Exports and Imports has remarkable changed in the sense that the importance of
developing countries as foreign trade has considerably increased. After independence,
especially from 1990-91 to 2009-10, significant changes in the direction of India
foreign trade have been witnessed, which table no 4.12 already showed. The major
changes are:

1) India's trade with developing countries of Asia, Africa and Latin America has
shown an increasing trend. The exports to developing countries which were only 14.2
percent in 1987-88 shot up to 42.3 percent in 2007-08. There is marked improvement
in exports to countries of Asia whose share improved significantly from 12 percent to
about 31.5 percent during this period. China and Hong Kong shared about 10.8
percent of our exports. Followed by SAARC region 5.7 percent. So far as imports
are concerned, our imports from developing countries have risen from 17.3 percent in
1987-88 to 33.6 percent in 2007-08. However imports from developing countries have
risen from 17.3 percent in 1987-88 to 33.6 percent in 2007-08 and percent in
2010-11. However, Import from SAARC region was barely 1 percent. The share of
China and Hong Kong alone was 12.4 percent in 2007-08. It may be noted that china
including Hong Kong has emerged in 2006-07 as India's second highest trading
partner, after USA, overtaking countries like U.K., Belgium and Germany.

2) India's exports with OECD countries were about 59 percent in 1987-88 have
declined sharply to 38.8 percent in 2007-08 and 33.2 percent in 2010-11
respectively. Similarly, there has been a still sharper decline in imports from OECD
countries from about 59.8 percent in 1987-88 to 31.7 percent in 2007- 08 and 29.9
percent in 2010-11 respectively. The reason of declining is universally observed in
European Union, North America (including USA) and other OECD countries like
Australia, Japan and Switzerland.

3) India's foreign trade with OPEC countries has also improved significantly, exports
156
increasing from 6.1 percent in 1987-88 to 16.5 percent in 2007-08 and 21.5 percent in
2010-11 respectively. However imports from OPEC countries have shot up to 13.3
percent in 1987-88 and 31.8 percent in 2007-08 and 33.8 percent in 2010-11
respectively. The main reason of increasing of imports value is increasing
international price of oil and also the growing demand in India. Among the OPEC
countries, UAE is most important, followed by Indonesia and Saudi Arabia.

4) India's has also great relation with Eastern Europe; more especially Russia which
occupied a very significant position in India's foreign trade in the 70s has lost
considerably. In 1987-88 there were 16.6 percent to Eastern Europe which have
declined in 2007-08 and reached 2.1 percent and in 2010-11 it is only 1.2 percent.
Similarly, there has been still decline in imports from Eastern Europe. It has accounted
9.6 percent in 1987-88, 2.2 percent m 2007-08 and 1.6 percent in 2010-11
respectively. This has happened after the disintegration of USSR and the establishment
of Common Wealth Independent State (CIS) in 1992-93.

5) USA is the first country who occupies first place among all individual
countries with a share of about 13 percent export trade and 5.5 percent in import
in India's foreign trade business.

But however U.K. has lost its position of pre-eminence and accounts for barely 4.1
and 2.1 percent of our exports and imports respectively. From 2005-06 to 2007-08
USA was the top destination country for exports but for 2008-09 position has just
changed and UAE has replaced USA at the top.

6) Latin America which shared barely 0.3 percent in exports of India has
improved its position to 3.2 percent in 2007-08. Similarly, the share of imports was 2.6
percent in 2007-08. However there is good scope for expanding trade with Latin
America.

7) In the connection of developed countries like Japan, Austrilia and Switzerland

together had 3.1 percent share in India's exports and 5.5 percent in India's imports in
2007-08, whereas they accounted for 14.1 percent of India's exports and 16.2
percent of India's imports in 1987-88.

8) India's foreign trade with Africa has also begun though the share of exports was
7.6 percent in 2007-08 and the share in imports was 4.3 percent. However,
Africa is emerging as a small partner with greater potential in future.
157
9) In 2007-08, six countries viz. U.K., Hong Kong, and China, UAE, Germany, Japan
accounted for 43.0 percent of India's exports and 32.3 percent of India's imports.

Hence, it may be also concluded that India's foreign trade has became much more
diversified and excessive dependence on OECD countries during 2001 to 2010 has
declined. However with developing countries more especially with Asian countries,
there is an improving uptrend both in exports and imports. There are great welcome
signals in the direction of India's foreign trade. As well as we studies that the major
exports items of India are live animal, milk products, wheat, rice, tea, coffee,
spices, cumin seed, tamarind powder, sesames, sugar, henna, herbal, extract, medicines,
fertilizers, chemicals, salt, iron ores, minerals, books, leather products, textiles, dyes
and pigments, home fiimishing, footwear, brass items, sanitary wear, ceramic,
glassware, flanges, fillings, embroidered and zari items, pipe and pipefittings,
handicraft, cables, liiedical disposable, laboratory equipment's, surgical equipment's,
sports goods, wooden furniture and electrical products. In addition major items of
imports are cereals and preparations, fertilizers, edible oil, sugar, pulp and waste paper,
newsprint, crude rubber, non-ferrous metals, metallic ferrous ores and metal, scrap,
iron and steel, crude petroleum and petroleum products, pearls, precious and semi-
precious stones, machinery, project goods, pulses, coal and its derivatives, non-
metallic, organic and inorganic chemicals, Dyeing, medicinal products and pharma
products, artificial resins, yam and fabrics (Silk, cotton, wool), electronic goods, gold
and silver, essential oils, computer software etc.

Furthermore, the drastic decline in growth rate of exports during 2001-02 and 2007-08
was primarily due to structural constraints and global recession in international trade
and economy. This recessionary and decline tendencies across the world affected the
foreign trade. Such slow down and contraction of foreign trade also resulted in
emergence of protectionist policies by India in some foreign trade sector in the form of
barriers of technical, social and environmental standards affecting market access and
disrupting exports fi-om India. But it is true that India may have been slow to embark
on export led growth, but its growth rate of exports is among the highest among major
Asian countries. So, that there is continuous need for India to move up strengthen of
high quality infrastructure and exploration of new markets and working out more
adequate and comprehensive EXIM policy or Foreign Trade Policy and working
strongly on export promotion, gives the potential for improved exports. For that,
India also need to make and preserve sufficient Regional Trade Agreements (RTAs)
158
with a number of trading partners of foreign trade which will be studied in the next
chapter.

• References:

1. Kothari, Monika "Export Promotion measures in India'" Deep and Deep

publication Pvt. Ltd., New Delhi, 2007, P.54

2. Texprocil, "India Trade, CMIE / DGCI and S, Kolkata

3. Datt, Ruddar and Sundharam, K.P.M., "Indian Economy", S.Chand & Com.
Ltd. New Delhi, 2010, P.757

4. Kothari, Monika "Export Promotion measures in India'" Deep and Deep

publication Pvt. Ltd., New Delhi, 2007, P.54

5. Kothari, Monika "Export Promotion measures in India" Deep and Deep

publication Pvt. Ltd., New Delhi, 2007, P.54

6. Datt, Ruddar and Sundharam, K.P.M., "Indian Economy'", S.Chand & Com.
Ltd. New Delhi, 2010, P.756

7. Government of India, Planning Commission, Tenth Five Year Plan (2002-07),

Vol.1, P.l 10.

8. Government of India, Planning Commission, Tenth Five Year Plan (2002-07),

Vol.1, P. 110.

9. Govenmient of India, Planning Commission, Tenth Five Year Plan (2002-07),

Vol.1, P. 102.

10. CMIE, May 2004 and www. google.com.

• •
•

159