Merchandise Trade

Merchandise trade also known as "trade in goods" is defined according to

the general trade definition. It overs all types of inward and outward
movement of goods (generally agricultural products, fuels and mining
products, and other manufactured products) through a country or territory
including movements through customs warehouses and free zones.
Goods here include all merchandise that either add to or reduce the stock of
material resources of a country by entering (imports) or leaving (exports)
the country's economic territory. Unless otherwise indicated, exports are
valued at transaction value, including the cost of transportation and
insurance to bring the merchandise to the frontier of the exporting country
or territory ("free on board" valuation). Unless otherwise indicated, imports
are valued at transaction value plus the cost of transportation and insurance
to the frontier of the importing country or territory ("Cost insurance and
freight" valuation).
 Trends in Growth of Merchandise
Trade Growth in the volume of global merchandise trade is expected to
rebound in 2017 from its tepid performance in 2016, but only if the global
economy recovers as expected and governments pursue the right policy mix
as per the report given by WTO economists. The WTO is forecasting that
global merchandise trade will expand by 2.4% in 2017: however, as deep
uncertainty about near-term economic and policy developments raise the
forecast risk, this figure is placed within a range of 1.8% to 3,6%. In 2018, the
WTO is forecasting trade growth 2.1% and 4%.
Historically, the volume of world merchandise trade has tended to grow about
15 times faster than world output, although in the 1990s it grew more than
twice as fast. However, since the financial crisis, the ratio of trade growth to
GDP growth has fallen to around 2016 marked the first time since 2001 that
this ratio has dropped below 1, to a ratio of 0.6:1. The ratio is expected to
partly recover in 2017, but it remains a cause for concern
The unusually low 1.3% growth in world merchandise trade volume in 2016 was the
result of several risk converging over the course of the year. These weighed on
imports of both developed and developing economies, although the latter were more
affected. Developing economies suffered a sharp 3% decline in imports in the first
quarter, equivalent to an annualized drop of 11.6%, but growth resumed in the
second quarter and losses were recovered by the end of the year. Meanwhile
developed economies' imports continued to grow but at a reduced pace.
The weakness of imports was reflected on the export side in slow growth of
shipments from both developed and developing countries. For the year, imports of
developed countries grew 2.0% while those of developing economies stagnated at
0.2%. Exports recorded modest growth in both developed and developing countries,
1.4% in the former and 1.3% in the latter. Geographic regions were affected to
varying degrees by the fall in trade in 2016. The first quarter was characterized by
financial turbulence that affected China and its regional trading partners, as fears of
an economic hard-landing and currency depreciation increased. Asian imports
dropped in Q1, but the fall was short-lived and Asia ultimately recorded growth of
2.0% for the year.
In 2016, world merchandise exports were valued at U.S. $15.46 trillion, down
3.3% from the previous year. All regions recorded declines in exports, with
the smallest drop registered by Europe (-0.3%) and the largest reported by the
Commonwealth of Independent States (-16.2%). On the import side Europe
saw a small increase of 0.2%, while all other regions recorded declines.
The sluggishness of trade in 2016 and previous years led many economists to
wonder whether changes in the structure of the global economy would
weaken growth over the medium term. They noted an increase in barriers to
trade other than tariffs and a reversal in the creation of what are known as
global value chains, or the process by which large companies moved parts of
their production and associated jobs overseas.
There are signs that investment spending has picked up in 2017, and the WTO
forecasts that trade flows will rise by 2.4% this year, and could increase by as
much as 4% in 2018.
 Composition of Merchandise Trade
Trade By composition of Merchandise trade we mean the types of products
(generally agricultural products fuels and mining products, and other
manufactured products) in which countries trade. In other words, it shows the
types of goods imported and exported by a particular country. The composition
of trade is indicative of the structure and level of development of an economy.
For example, most of the developing economies generally export primary goods
or raw materials of agricultural origin and import manufactured industrial goods.
As an economy develops it begins to export more of manufactured goods and
imports industrial raw materials, capital equipment and technical know-how.
The share of manufactured goods in total merchandise exports was just over 20
per cent in 2015, up from 67 per cent in 2014. The share of agricultural products
also increased slightly to around 10 per cent in 2015. This was mostly due to the
sharp decline in the value of fuels and mining products whose share dropped to
18 per cent in 2015, from 20 per cent in 2014
The 3 per cent decrease in value terms of world merchandise. Exports in
2016 was mostly caused by the strong decline in exports of fuels and mining
products (-14 per cent in 2016). However, the decline for this category was
less marked than in 2015 (36 per cent). Exports of manufactured goods
decreased slightly (-2 per cent) while exports of agricultural products
registered a slight increase (+1 per cent). Exports of manufactured goods
totaled US$ 11.2 trillion in 2016, representing more than 70 per cent of total
world exports in 2016 .
The steep decline in commodity prices recorded in 2015 mostly halted in
2016, with the exception of energy prices . The export prices of all major
commodity groups, apart from food and beverages, decreased slightly but on
a much smaller scale than in 2015. Prices for food and beverages registered a
small increase of 1 per cent. This was mostly due to unfavorable weather
conditions in several parts of the world making many of these products more
scarce?
The prices of minerals and non-ferrous metals decreased by 5 per cent
in 2016 but there was an increase in prices for some commodities, such
as tin (+12 per cent), zinc (+8 per cent), lead (+4 per cent) and iron ore
(+4 per cent). A fall in prices, however, was recorded for uranium (-28
per cent), nickel (-19 per cent) and copper ( 12 per cent). Energy prices
fell by 18 per cent, with the highest decline registered by natural gas (-
34 per cent). Prices for crude petroleum fell by 18 per cent but coal
prices went up by 14 per cent.
Regional Pattern/Distribution of Merchandise
Trade
China, the United States, Germany. Japan and France were the top five traders for
merchandise exports and imports (in terms of value) in 2016, accounting for more than
38 per cent of world merchandise trade. terms of exports and imports. Netherlands and
the United Kingdom ranked fifth and fourth for exports and imports respectively.
Imports and exports from the top five traders both dropped by 3 per cent in 2016,
compared with decline of 11 per cent and 7 per cent respectively in 2015.
China's share of world merchandise trade in 2016 declined for the first time since 1996,
falling to 11.8 per c compared with 12.2 per cent in 2015 Chi exports totalled US$ 2.10
trillion, decline of a per con following a3 per cent decrease in 2015. Chinese exports
make a slow start to 2016, with an initial decline of 11 per cent compared with the same
quarter of 2015. On the imports side, a decline of 5 per cent on a year-on-year basis was
less marked than the decline of 14 per cent recorded in 2015. In volume terms, import
demand from Chinn grew by 3 per cent following a decline of 2 per cent in 2015.
The United States exported goods with a value of USS 145 trillion in 2016 and
imported goods totaling USS 2.25 in Merchandise exports decreased by 3 per
cent, following a decline of 7 per cent in 2015 Agricultural goods, which
represented 11 per cent of goods experts 12016, grew by 3 per cent following a
decline of 13 per cent in 2015.Japan was the world's fourth-largest exporter of
merchandise trade and fifth-largest importer in 2015, with a 4 per cent share
total trade.
Among developed economies Japan showed the highest exports growth value
and volume terms, Japan's merchandise exports rose by 3 per cent while
imports fill by 6 per cent Export growth in 2016 followed a decline of 9 per
cent in 2015, with exports US$ 20.1 billion higher than in 2015Overall, Europe
is the third-largest destination of Japanese manufactured goods, accounting for
12 per cent of these exports, with Australia and North America representing 33
per cent and 25 per cent shares respectively. Within Asia Pacific Economic
Cooperation (APEC), Japan represented per cent of the total merchandise trade
of the group in 2016
Europe was the best performing region in 2016 followed by Asia and North
America. Europe's merchandise export amounted to US$ 5,94 trillion,
followed by Asia's USS 575 on and North America's USS 2.22 trillion. In
terms of imports, Europe accounted for USS 5.92 trillion while Asia's and
North America's import stood at USS 5.21 million and USS 3.07 trillion
respectively.
Europe's exports and imports remained flat overall in 2016 compared with a
decline of 13 per cent in 2015Africa's export experienced a decline of 12 per
cent in value tens in 2016, with oil exporters most adversely affected by
lower oil prices. With average annual fuel prices 17 per cent lower in 2016,
African oil exporters dragged down the region's performance. Oil exporters
recorded a decline of 27 per cent compared with a decline of just 1 per cent
for Africa's non-oil exporters.
Among the leading oil exporters, Nigeria saw a decline of 36 per cent
while Algeria and Tunisia fared relatively better than the average for
this group, recording declines of 16 per cent and 4 per cent respectively
in value Conversely. Egypt bounced back from the previous year's poor
performance, with growth of 19 per cent for its exports. The lackluster
performance of African countries overall was doe to a variety of other
factors, including slow economic recovery in advanced and emerging
economies (notably China), the drought experienced in some African
counties as well as the effects of political turmoil, particularly for North
African countries Asia's merchandise trade continued to deteriorate in
2015 in value terms. The region experienced a decline in exports of 4
per cent. Among the larger Asian economies, India recorded a much less
significant decline (-1 per cent) in its exons in 2016 compared with the
decline of 17 per cent in 2015.
On the imports side, falling fuel prices continued to weigh down the value
of imports in 2016. Developed economies in Asia registered growth in
exports value terms of 3 per cent in 2016 following a decline of 13 per cent
in 2015, largely driven by a recovery of Japan's exports.
Among the exporters of manufactured goods, Malaysia and the Philippines
experienced declines of 5 per cent and 4 per cent respectively. South and
Central America's merchandise exports were down 6 per cent in 2016 as the
region remains largely dependent on agricultural and energy commodities
and is therefore vulnerable so price movements for these products.
Brazil, the world's third largest exporter of agricultural products in 2016,
experienced a decline in exports of 3 per cent, dragging down the
performance of the South American region. Argentina, Costa Rica, the
Dominican Republic, Peru and Paraguay achieved positive exports trade
growth in 2016.
 Service Trade
A service is the non-material equivalent of a good. A service provision
result in ownership but implying an exchange of value between seller
and byer what differentiates it from providing physical goods.
According to Philip Kotler “A service is an act or performance that one
party can offer essentially intangible and does not result in the
ownership of anything. Its production may or may not be a physical
product”.
 Trends in Growth of Service Trade
• Trade in services has expanded faster than trade in goods between 2005 and 2017, at 5.4 per cent per
year on average.
• When commercial presence in another country (mode 3) is accounted for, trade in services was worth
US$ 13.3 trillion in 2017.
• Commercial presence is the dominant mode of supply for trading services globally, representing almost
60 per cent of trade in services in 2017.
• Distribution and financial services are the services most traded globally, each accounting for almost
one-fifth of trade in services. The share of other services, such as education, health or environmental
services, is rising rapidly, but currently accounts for a negligible proportion of overall trade in services.
• The contribution of developing economies to trade in services grew by more than 10 percentage points
between 2005 and 2017, but is mainly concentrated in five economies. The share of least developed
countries remains small, although it has increased significantly since 2005.
• In developing economies, micro, small and medium-sized enterprises trading in services start
exporting more quickly than manufacturing firms. However, they export less than 5 per cent of total
sales, a share three times lower than large services firms.
• Firms owned by women are under-represented in services exports, although less so than in
manufacturing.
• Services value-added accounts for close to half of the value of international goods and
services trade.
• Trade in services creates welfare gains for society through a more efficient allocation of
resources, greater economies of scale, and an increase in the variety of services on
offer.
• In addition, some service sectors, such as infrastructural services, play a critical role in
the functioning of the entire economy while others affect the productivity of the
economy’s factors of production.
• An important avenue through which services trade benefits societies is the
improvement in firms 'competitiveness, both in the services and manufacturing sectors.
Because services providers must often be present in the area where the service is
delivered, the quality of institutions in importing countries is of greater importance in
services trade than in goods trade.
• A large number of jobs is supported by services exports, but the effect of services trade
on the level and structure of employment has so far been minimal. Services trade may
help to reduce economic inequality for women and for micro, small and medium-sized
enterprises.
• Trade costs in services are almost double those in goods, but they fell by 9 per cent
between 2000 and 2017 thanks to the spread of digital technologies, the lowering of
policy barriers, and investment in infrastructure.
• Four major trends will affect services trade in the future: digital technologies,
demographic changes, rising incomes, and the impact of climate change. These trends
will create new types of services trade, affect the demand for services, and disrupt trade
in some services while creating new markets in areas such as environmental services.
• According to the WTO Global Trade Model, the share in global trade of the services
sector could increase by 50 per cent by 2040. If developing countries are able to adopt
digital technologies, their share in global services trade could increase by about 15 per
cent.
• Despite the reforms that most economies have undertaken over the past few decades,
trade in services remains subject to higher barriers than trade in goods.
• Driving new services trade reforms via trade agreements has proven difficult.
• Accompanying market-opening negotiations with greater international cooperation
focused on domestic regulatory measures may be one way to harness the potential of
services trade.
Trade of developing
countries
 SOUTH-SOUTH TRADE
• Developing countries’ joint trade profile has changed drastically in the last two decades.
Developing economies accounted for almost half of the world’s merchandise exports in
2014, as compared to less than a third in 2000, and even less in the late 90s. Large
emerging economies, in particular China and to a lesser extent India, have been the main
engines of this growth. China almost tripled its share of world exports between 2000 and
2012.
• A key element of this increasing share of developing countries in international trade has
been the rapid growth in South-South trade—that is, trade with and amongst developing
countries. In the last decade, South-South trade has outperformed both world trade and
South-North trade. South-South trade in goods amounted to about US$5 trillion in 2013,
which corresponded to about a quarter of world goods trade. It has been an important
element in the overall growth of trade in the last decade, especially in helping revive the
global economy after the financial crisis of 2009.
• The significance of South-South trade in services is slightly less. Services exports from
developing countries are still marked by a dominant South-North pattern, even though
South-South trade has been catching up rapidly in recent years. Available estimates show
that the share of South-South trade in developing countries’ services exports has risen from
16.5 percent in 2000 to about a third in 2010.
• The rising importance of South-South trade is mostly related to the trade
performances of East Asian economies. In 2013, more than 75 percent of South-
South merchandise trade was shipped to, or from, countries in the East Asian
region. Of course, China, which is the world´s biggest merchandise exporter, is
also the dominating player in South-South trade. In 2014, China alone accounted
for 21 percent of exports and 27 percent of imports of all South-South trade.
• The increasing importance of developing countries and South-South relationships
is also reflected in foreign direct investment (FDI). FDI flows to developing
economies reached a record high of US$681 billion in 2014, constituting 55
percent of world FDI flows, as compared to less than 20 percent in 2000.
• Interestingly, developing economies are increasingly gaining importance as
sources of outward FDI flows. In 2013, more than a third of global outward FDI
flows had their origins in developing economies, up from less than 10 percent in
2000. South-South FDI stocks grew by two-thirds from US$1.7 trillion in 2009 to
US$2.9 trillion in 2013, thereby becoming bigger than South-North FDI stocks
and accounting for about 11 percent of global outward FDI stocks.
• The surge in South-South trade and related investment is closely linked to
another significant development in world trade, namely the international
fragmentation of production in the context of global value chains (GVCs).
Technological progress, particularly in information and communication
technology, and falling trade costs have fostered the slicing up of the
production process into ever-finer tasks and its geographic fragmentation
across the globe.
• As a consequence, trade within global value chains, which is typically
measured in terms of either trade in value-added or in intermediate goods, has
increased dramatically over the last decade. Here, too, the contribution and
participation of developing economies has been significant. When measured in
value-added terms, more than half of goods and services exports took place
within value chains.
• Developing countries have significantly increased their participation in GVCs
in the last two decades. While in 1995 only about 40 percent of developing
countries’ exports were related to global value chains, in 2008 54 percent of
developing countries’ exports were traded within value chains.
• In terms of trade in intermediate goods, the prevalence of GVCs becomes even
more visible. Intermediate-goods trade accounted for more than US$7 trillion
in 2013, representing a share of about 40 percent of goods traded, whereas
primary, capital and consumer goods each accounted for slightly less than
US$3 trillion.
• If one looks at the role that South-South trade plays in GVCs, it is possible to
highlight two features. First, a large part of the participation of South-South
trade within GVCs is because of participation in regional value chains in East
Asia that serve final demand in developed markets. Intermediate goods
account for more than 40 percent of South-South trade, while final goods
constitute less than 10 percent.
• In manufacturing, South-South trade is largest in communications equipment,
chemicals, electric and other machinery, and basic metals. For instance, in
communication equipment, South-South trade accounts for about half of world
trade, which, again, reflects the presence of regional value chains in East Asia.
• The second feature of South-South trade in GVCs, and also in Southern exports
more generally, is their continuing reliance on primary commodities, in particular
oil, gas and coal, and petroleum products. This is particularly the case for
developing countries in Latin America, Africa and the Middle East. Primary
products account for about a third of exports in both South-South and South-
North trade.
• Apart from China and a few other developing economies in East Asia,
developing economies in other parts of the world are mainly exporting primary
products to developed markets or, as part of South-South trade, to China.
Commodity-exporting countries such as Brazil, Nigeria or South Africa have
benefitted from strong growth in China and the boom in commodity prices.
• Given the dependence on East Asian economies, particularly China, and the
continuing reliance on primary commodities in the export basket of many
developing economies, South-South trade is currently facing some challenges.
The slowing of economic growth in China and the related fall in prices of
primary commodities pose challenges to exporting developing countries, in
particular to the exporters of primary commodities.
• Energy prices, including oil, have been hit hardest. Prices have fallen by
around 40 percent since the beginning of 2014. The decline in the prices of
minerals and metals was slower, but they were also quoting 40 percent lower in
2015 as compared to 2011.
• After riding the wave of increasing prices in the last decade, commodity-rich
developing economies now face the challenge of keeping exports up. Figure 1
shows the development of quarterly exports of five commodity-exporting
developing countries during the last four years. The exports of all five countries
fell by more than 20 percent during the last four years, with oil-exporting
economies such as Nigeria and Saudi Arabia taking the hardest hit due to the
price plunge in oil since the second half of 2014. An interconnected world,
while hugely advantageous, also comes with its share of problems. For
instance, the economic slowdown in China is being transmitted to other
countries, including developing countries, because of the increasing
interdependence of trade through value chains. There is a certain risk that a
prolonged Chinese slowdown and its transmission effect on other developing
countries will have a negative impact on the world economy.
• Policymakers in developing countries, therefore, face the difficult question of how to
sustain their exports. When it comes to trade policy, policymakers should, at least,
pursue the following four avenues to bolster South-South trade, and trade more
generally.
(a) An important element that could significantly contribute to helping sustain trade
growth is the implementation of the WTO Trade Facilitation Agreement (TFA). The
TFA, which was agreed upon by WTO members at the Bali Ministerial Conference in
2013, aims at lowering the costs of shipping goods across borders by simplifying
customs procedures. According to estimates by the OECD (Organization for Economic
Co-operation and Development), the implementation of the TFA can reduce worldwide
trade costs by between 12.5 and 17.5 percent. The gains from the implementation of
the TFA in terms of trade-cost reductions and increases in exports are generally
estimated to be highest for developing countries. Since the implementation of the TFA
will lower the fixed costs associated with trading, it can help developing countries
diversify their exports in terms of both products and markets. For instance, recent
research estimates that countries in Sub-Saharan Africa could experience an increase of
up to 16 percent in the number of products exported by destination and an increase of
up to 35 percent in the number of export destinations by product.
(b) Another area with great potential for developing countries is the further
development of e-commerce—that is, the sale of goods or services over the Internet.
E-commerce can benefit firms from developing countries and South-South trade in a
number of ways. E-commerce can facilitate and increase the participation of firms
from developing countries in GVCs. It increases market access and the reach of small
firms and improves market efficiency. While the goods still need to be physically
shipped, e-commerce drastically lowers the information and transaction costs of
international trade. However, in order to foster electronic commerce, policymakers in
developing countries will need to upgrade ICT (information and communications
technology) infrastructure and improve regulatory frameworks, including that relating
to online payments and financial transactions.
(c) Regional integration and the development of regional value chains is another
major factor in sustaining trade growth for developing countries. As discussed earlier,
South-South trade has been driven by regional value chains in East Asia. Even though
lacking China as a nearby production hub, developing economies in Africa, South
Asia and also Latin America should pursue regional integration and trade
liberalization to create stronger production and trade linkages among themselves.
(d) Finally, a significant outcome at the forthcoming Tenth WTO Ministerial
Conference in Nairobi on December 15-18 would further strengthen the
multilateral trading system and create new market-access opportunities, which,
too, would bolster South-South trade. It is the first time that a WTO Ministerial
Conference is being held on the African continent, making it all the more
important to progress on the development dimension of the multilateral-trading
system, including steps that would help South-South trade.
• Clearly, South-South trade has been a driver of world-trade growth for more
than a decade and is today a very important component of world trade. The
recent economic slowdown in some emerging economies, however, also
reveals the dependencies and limitations of trade among developing
economies. In order to continue to grow, South-South trade needs to become
more diversified in terms of both markets and products. Governments should
not miss out on the policy options they have on hand to make South-South
trade a more stable engine of trade and economic growth
 Analysis of foreign trade of India
INDIA’S FOREIGN TRADE PRE AND POST REFORMS PERIOD
Since the time of independence in 1947, India’s foreign trade has shown a significant positive growth.
Prior to independence, India was typically a colonial economy, based primarily on the agricultural
sector. Major portion of India’s trade was controlled by the British rulers who exploited the country’s
resources by exporting the goods to England at cheaper rates. After independence, Indian government
was facing major problem related to economic development of the country. At that time growth
economy conditions were not very good. This was because it did not have proper resources for the
development, not only inters of natural resources but also in terms of financial and industrial
development. At that time India's foreign trade was regulated through economic planning.
During the period of 1949-1970, India’s export has grown at a very slow rate. In the words of
Harikumar (2014) “In the period of 1950 to 1951, main products dominated the Indian export sector.
These included cashew kernels, black pepper, tea, coal, mica, manganese ore, raw and tanned hides and
skins, vegetable oils, raw cotton, and raw wool. These products comprised of 34 percent of the total
exports. In the period of 1950s there was balancing with payments crunch. The export proceeds were
not enough to fulfil the emerging import demand.” In 1950s, India entered into planned development
era. Due to continuous increasing imports and stagnant exports, policy of import substitution was
started in 1960s to cut down on imports.
During this period, Indian Government had implemented the policy of export
pessimism and import substitution. During the period of 1971-1991, export
performance had improved. In the late 1960s, Government of India took significant
steps like establishment of Indian Institute of Foreign Trade (IIFT) and others such
institutions for thepromotion of foreign trade. The world economy was also showing
rapid growth during 1970s.
The growth rate of exports was 15.8 percent in 1970s, which declined to 8 percent in
1980s. The decade of 1970 also witnessed an upsurge in the imports, resulting in a
higher growth rate for imports as compared to exports. The export was flourishing at
the time of 1970s, however, showed a declining trend during the starting of1980s.
During the second half of the 1980s, due to recovery in the world economy, the
exports of India grew at a significant rate (17.8 percent).
There was found an unquestionable improvement in the competitive position of India
in terms of trade during the period as a result of the increased export subsidies. India
has a very high rate of merchandise trade growth compared with per capita income.
For instance, compound annual growth rate of merchandise trade are rises from 9
percent to 21 percent in1990-95, whereas per capita income has moved slowly to
about 8 per cent over 2000-05 from around 6percent in 1990-95. (Yadav, 2012)
India adopted New Economic Reforms in 1991 for the improvement in the economy
and country's growth. Economic Reforms comprises that the introduction to
inventive policies such as abolishing the market trade barriers, boosting economic
participation in private sector, decrease in the fiscal deficit, an increase in exports
and reducing imports, etc. for increasing the growth rate of the economy. Thereafter,
the government of India has announced many programs related to Economic
Reforms in India.
Liberalization, Privatization and Globalization (LPG) model is one of them. The
concept of globalization and liberalization was introduced in this era and it got
momentum through process of economic integration. In the post liberalization
period, rate of growth of import and export increased manifold. Many export
promotion policies were started after liberalization. Various schemes have been
introduced by the government from time to time to encourage exports, such as
Export Promotion Capital goods(EPCG), Duty Entitlement Passbook (DEPB),
Software Technology Parks (STPs), Special Import License (SIL), Agri Export
Zones (AEZ), Export Oriented Units (EOUs), Duty Free Replenishment Certificate
(DFRC), Special Economic Zones (SEZs), Electronics Hardware Technology Parks
(EHTPs), and Biotechnology Parks (BTPs).
In 1991, the major program of economic reform were introduced which emphasize on
external sector wherein the protective tariffs were decreased, changes into foreign
investment and the restrictive import licensing system was relaxed and simplified. This
policy mainly focused on liberalization of capital godsend imports from industry for
encouraging the domestic and export oriented growth. India’s trade was changed
significantly into the post reform periods.
After the New economic reforms, volume of trade rose up and composition of trade was
also frequently changed. India’s chief exports involve machinery items, chemicals,
precious and semi-precious stones and electronic goods. On the other hand, side major
imports were involved fertilizers, gold, petroleum and petroleum products. Through the
introduction to new economic reforms, there was also an enlargement of the direction of
India’s foreign trade with the new other countries and regional trading blocs. Before
these reforms, India’s exports were limited to Ocean OPEC countries but after the new
economic policy our country turn towards the new Asian countries and consequently
China became a major trading partner of India. In terms of direction, traditionally EU
and USA was the major trading partners of India but from the last few years this scenario
has been changed and India’s trade is increasing with mainly East Asian countries
 Trade policy and promotion
INDIA’S FOREIGN TRADE POLICY
Trade policy refers to the regulations and agreements that control imports and exports to foreign
countries. The Department of Commerce has the mandate to make India a major player in global
trade and assume a role of leadership in international trade organizations commensurate with
India’s growing importance. The Department devises commodity and country-specific strategy in
the medium term and strategic plan/vision and India’s Foreign Trade Policy in the long run.
India’s Foreign Trade Policy (FTP) provides the basic framework of policy and strategy for
promoting exports and trade. It is periodically reviewed to adapt to the changing domestic and
international scenario.
The Department is also responsible for multilateral and bilateral commercial relations, special
economic zones (SEZs), state trading, export promotion and trade facilitation, and development
and regulation of certain export oriented industries and commodities.
The current Foreign Trade Policy (2015-20) focusses on improving India’s market share in
existing markets and products as well as exploring new products and new markets. India’s Foreign
Trade Policy also envisages helping exporters leverage benefits of GST, closely monitoring export
performances, improving ease of trading across borders, increasing realization from India’s
agriculture-based exports and promoting exports from MSMEs and labor intensive sectors.
The DoC has also sought to make states active partners in exports. As a consequence, state
governments are now actively developing export strategies based on the strengths of their
respective sectors. While the external environment has a major role to play in the success of
export policies, it is also critical to address constraints within India including infrastructure
bottlenecks, high transaction costs, complex procedures, constraints in manufacturing and
inadequate diversification in India’s services exports. India is a signatory to the Trade
Facilitation Agreement (TFA) at the WTO, which will contribute to the simplification and
lowering of transaction costs.
According to current WTO rules as well as those under negotiation India needs to eventually
phase out subsidies and move towards fundamental systemic measures in the future. Under
the Agreement on Subsidies, India has moved on from Annex VII countries of WTO on
breaching the US$ 1,000 per capita income benchmark for 3 consecutive years in 2015.
The present Commerce & Industry Minister Shri Piyush Goyal has also asserted that India
needs to evolve from a dependence on subsidies, “I do not think that any programme or
ambitious scheme can run only on subsidies and government help. We have to move out of
this continuous effort and demand and make our industry truly competitive and self-reliant.”
The government is looking to focus on promoting exports of high value-added
products, where India has a strong domestic manufacturing base, including
engineering goods, electronics, drugs and pharmaceuticals, textiles and
agriculture. This is apart from the continued push to the Indian services sector.
Around 70% of India’s exports constitute products that have just 30% share in
global trade. The government is looking at some more promising product
groups like defense equipment, medical devices, agro-processing, technical
textiles and chemicals.
In 2018, then Commerce & Industry Minister Shri Suresh Prabhu envisaged a
strategy to double India’s exports by 2025. The approach included devising a
commodity-specific strategy for key sectors like gems and jewelry, leather,
textile & apparel, engineering sector, electronics, chemicals and
petrochemicals, pharma, agro and allied products and marine products.
Territory specific strategy will cover North American Free Trade Agreement
(NAFTA), Europe, North East Asia, ASEAN, South Asia, Latin America,
Africa and WANA, Australia, New Zealand, and CIS.