Foreign Trade of India

Foreign trade of India is all about imports and exports to and from India. At the national level, foreign trade is facilitated and regulated by Directorate General of Foreign Trade (DGFT), which comes under the Ministry of Commerce and Industry. From Independence until 1991, India was almost a closed economy. But after 1991, due to liberalization policy, foreign trade in India improved significantly. If we sees the current situation of foreign trade of India, for the Financial Year, 2023-24, India's total exports were $776.68 billion while total imports were $854.80 billion making a trade deficit of $78.12 billion.

Foreign Trade Policy of India, also known as EXIM Policy or Export Import Policy, frames rules and regulations for imports and exports of India. It aims at improving export potential and export performance, regulating imports, encouraging external trade of India and developing a favorable balance of payments situation.

Exports and Imports of India

• India's exports include Primary products like Tea, Coffee, Petroleum products, oil products, rice, Manufactured goods, etc. Among the manufactured goods, engineering goods are predominant followed by textile products and gems and jewelry.
  
  
• India's imports include Bulk imports and Non-Bulk imports. Among the bulk imports petroleum and petroleum products are predominant. Among non–bulk imports, capital goods account for the maximum percentage.
  
  
• The Balance of Trade (BoT) which is nothing but the difference between the exports and imports continues to be adverse for India even after undertaking so many measures.
  
  
• To encourage exports, India started the Export Processing Zones (EPZ) as well as the Special Economic Zones (SEZ).
  
  
• Similar to SEZs, all the industrial units under one EPZ, will get concession particular to that zone. All the units have to serve their products in domestic circuit and then to exports.
  
  
• The minimum size of SEZ should not be less than 1000 Hectares and not more than 10% of the land should be double cropped. Any Private / Public / Joint Venture can setup an SEZ. An SEZ is meant for providing an internationally competitive as well as a hassle free environment for the export promotion.

Balance of Payments

Balance of Payments (BoP) is an evaluation between receipts and payments of a country in its transaction with rest of the world. It includes both Current Account as well as Capital Account.

• Current Account has two components, namely Balance of Trade (net balance of trade from tangible goods) and Invisibles.
  
  
• Invisibles are inward remittances by migrant workers, export of software services, revenue from tourism, dividend and royalty received on foreign loans, services like insurance, banking and shipping, etc.
  
  
• For India, there remains Current Account Deficit (CAD) from 2004-05 onwards. Current Account Deficit (or Current Account Surplus) is the Sum of Invisibles and Balance of Trade.
  
  
• Capital Account covers external commercial borrowings (ECB), external assistance, foreign investment, capital flow from the country to foreign countries, etc.
  
  
• Since launching of economic reforms in India, there is a significant increase in Balance of Payments situation. Invisibles are showing impressive performance though the Balance of Trade continues to be in adverse condition.

Foreign Trade Policy

DGFT in India under Ministry of Commerce and Industry, announces Foreign Trade Policy for a period of five years. The main objectives this Policy are

• To quicken the growth of Indian economy by making economic activities from low level to high level so as to make India a global oriented economy and to squeeze the benefits by grabbing the global market opportunities.
  
  
• To induce sustained economic growth by giving access to requisite intermediate goods, raw materials, accessories and capital goods that are needed for expanding production.
  
  
• To create or make new employment opportunities and to maintain good standards of quality that are accepted internationally.
  
  
• To enhance agriculture, industry and services sectors technologically so as to improve their competitiveness.
  
  
• To offer quality goods and services to the consumers on par with international prices.

The policy measures that are taken for achieving the above objectives include

• Procedural rationalization
  
  
• Fiscal incentives
  
  
• Institutional changes
  
  
• Enhanced market access around the world and diversifying the export markets
  
  
• Bringing down the transaction charges
  
  
• Improvement in infrastructure related exports
  
  
• Providing full refund of all the indirect taxes and levies

Foreign Exchange Reserves

• Foreign Exchange Reserves or Forex Reserves are the currency reserves which can be liquidated at the international market.
  
  
• Forex reserves are made up of foreign currency assets and Gold that are held by RBI and SDRs (Special Drawing Rights) that are held by the Government.
  
  
• SDR is not a coin or a currency note but it is based on the basket of 5 currencies namely, US dollar, Euro, UK pound, Japanese yen and Chinese yuan.
  
  
• SDRs are being maintained in the accounts of IMF (International Monetary Fund) to meet the international obligations.
  
  
• India has Forex reserves of $682.13 billion as on 1st, Nov 2024 and ranks 4th in the world in terms of Foreign Exchange Reserves.