Growth of Trade and Commerce

INTRODUCTION

  • Among several features of globalization, one relates to increasing interactions among nations and removal of barriers to facilitate movement of goods, capital, labour and technology. It is a process that renders various activities and aspiration worldwide in scope or application. As a part of this process of increasing integration of the world, many countries have adopted economic reforms and liberalization in their own ways.
  • The rapid integration of Brazil, Russia, India, China and South Africa into the world market was an important element of globalization. Trade is the primary manifestation of this increasing integration and changing organizational structure of the global economy which has been much more extensive than in the past involving more countries & regions. In the similar way, it is also much more intensive as foreign trade became a key component of most countries economic activities. Over the years emerging economies like China, India, Brazil, Mexico, Russia and South Africa have made their presence felt in the global market and have come forth as new key drivers of global growth.
  • Among other emerging countries, China and India are the fastest growing economies. India with its distinct development strategy has the potential to influence economic activities of the global economy in the years to come. With this background, this study is an exploratory attempt to measure the quantum leap in export and import to India, and to identify changes in commodity composition and regional patterns of inflows and outflows of merchandise trade. The analysis pertains to four points of time 1990, 1995, 2000 and 2005. Some of the major findings of the study are as follows: (i) Manufacturing sector has increased its share vis-̂-vis other tradable sectors; (ii) Specialization of production and diversification of consumption; (iii) Indian trade is gradually moving away from low value-added product

TRADE INFRASTRUCTURE FOR EXPORT SCHEME (TIES)

Objectives

To enhance export competitiveness by bridging gaps in export infrastructure, creating focused export infrastructure, first mile and last mile connectivity for export-oriented projects and addressing quality and certification measures.

Salient features

  • It would provide financial assistance for setting up and upgradation of existing infrastructure with export linkages like border haats, cold chains, dry ports etc.
  • The Central and State Agencies, including Export Promotion Councils, Commodities Boards, SEZ Authorities and Apex Trade Bodies recognised under the EXIM policy of Government of India; are eligible for financial support under this scheme.
  • The Central Government funding will be in the form of grant-in-aid, normally not more than the equity being put in by the implementing agency or 50% of the total equity in the project. (In case of projects located in North Eastern States and Himalayan States including J&K, this grant can be upto 80% of the total equity).

MERCHANDISE EXPORTS FROM INDIA SCHEME

  • It is an export promotion scheme launched under the Foreign Trade Policy (FTP) 2015-20.
  • It has replaced 5 different schemes of earlier FTP (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, Vishesh Krishi and Gram Udyog Yojana) for rewarding merchandise exports which had varying conditions (sector specific or actual user only) attached to their use.
  • Now there would be no conditionality attached to the scrips issued under the scheme.

Service Exports from India Scheme (SEIS)

  • It was launched under the Foreign Trade Policy (FTP), 2015-20 replacing the earlier scheme ‘Served from India Scheme’.
  • SEIS shall apply to `Service Providers’ located in India’ instead of `Indian Service Providers’. Thus, SEIS provides for rewards to all Service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider.

TRENDS

  • In the age of globalisation, India is new entrant to expand international trend. In 1991, the government initiated some changes in its strategy on trade, foreign Investment, Tariffs and Taxes under the name of “New Economic Reforms”. Indian government mainly concentrated on reforms on Liberalization, openness and export sponsorship activity. It is witnessed that foreign Trade of India has considerably revolutionized export in the Post reforms period. Trade Volume increased and the composition of exports has undergone several noteworthy changes. In Post – reform Period, the major provider to export’s growth has been the manufacturing sector.
  • Though India has steadily opened up its wealth, its tariffs are high as compared with other countries, and its conjecture norms are still restricted. Foreign trade in India in legal term is the Foreign Trade (Development and Regulation) Act, 1992. The Act provide with the development and regulation of foreign trade by assisting imports into, and supplementing exports from India.
  • To fulfil the requirements of the Act, the government may make necessities for assisting and controlling foreign trade, may forbid, confine and regulate exports and imports, in all or particular cases as well as subject them to exclusion. Government is endorsed to devise and declare an export and import policy and also amend the same from time to time, by notification in the Official Gazette, and is also authoritative to appoint a ‘Director General of Foreign Trade’ for the purpose of the Act, including formulation and accomplishment of the export-import policy.
  • The 15X15 MatrixStrategies was introduced in 1995 and major aim of this policy was to recognize market diversification and commodity diversification. When reviewed the success of this, it represented that the share of the total top 15 product groups exported to the top 15 market destinations declined from 71% in 1996-97 to 66% in 2000-01 in respect of the total export of these 15 product groups for all destinations taken together. It clearly showed the market diversification for these product groups.
  • The major items of India’s exports controlled in the Matrix continue to remain the same during 2000 – 01 such as Gems and Jewellery, RMG Cotton including accessories and Cotton Yarn, Fabrics and Made Ups. The top three destinations changed from US, UK and Japan to US, Hong Kong and UAE. Another strategy was Focus LAC which was introduced in 1997 in order to enhance exports of chosen products such as Textiles including RMG, Engineering goods and Chemical products to Latin American Region. The highest growth rate of exports to this region was accomplished during period of 2000-01 when the value of exports was high of US$ 982 million.
  • Though the current trade between LAC and India is still low, there is possibility to increase two-way trade between India and the LAC region. It is observed from the export strategies of previous time is that the composition, competitiveness and complexion of world products trade are changing rapidly and there is a need to review the market constantly for any medium term export strategy to achieve a higher share of global exports on a sustainable basis. The main concentration of previous foreign trade strategies was on the existing export products of India.
  • Nonetheless, presently, the government has made policy on trade and investment policy that has established an obvious change from protecting ‘producers’ to benefiting ‘consumers’. It is reflected in its foreign trade strategy of India for 2004/09 which indicated that “for India to become a major player in world trade we have also to make possible those imports which are required to stimulate our economy”. With numerous economic alterations, globalisation of the Indian economy has been the foremost factor to formulate the trade policies.
  • The announcement of a new Foreign Trade Policy of India for a five year period of 2004-09, substituting until now taxonomy of EXIM Policy by Foreign Trade Policy is major step in the development of foreign trade policy. This policy made the overall development of India’s foreign trade and offers guidelines for the development of this sector. Main purpose of the Exim Policy is to hasten the economy from low level of economic activities to high level of economic activities by making it a globally oriented energetic economy and to derive maximum benefits from expanding global market opportunities, to encourage continued economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production, to boost the techno local strength and efficiency of Indian agriculture, industry and services, thereby, improving their competitiveness, to generate new employment and opportunities and encourage the attainment of internationally accepted standards of quality.
  • Finally, this policy provides quality consumer products at reasonable prices. A vibrant export-led growth strategy of doubling India’s share in global commodities trade with an attention on the sectors having prospects for export development and potential for employment generation, represent the main factor of the policy. These activities augment India’s international competitiveness and assist in increasing the suitability of Indian exports. The trade policy recognizes major strategies, outlines export incentives, and also focus on issues relating to institutional support including simplification of procedures relating to export activities.
  • India is now violently pushing for a more moderate global trade management, especially in services. It has understood a leadership role among developing nations in global trade debates, and played a decisive part in the Doha negotiations. With economic reforms, globalisation of the Indian economy has been the major factor in devising the foreign trade policy of India.

Challenges

  • The objective of the Foreign Trade Policy is to twofold India percentage share of global merchandise trade and to act as an effectual instrument of economic growth by giving a thrust to employment generation, especially in semi-urban and rural areas. The growth performance of exports has been a result of watchful effort of the Government to lessen transaction costs and assist trade. The guidelines of the Foreign Trade Policy (2004-09) for a five year period clearly articulate objectives, strategies and policy initiatives that has been involved in putting exports on a higher growth line.
  • There are numerous challenges and issues in foreign trade. These include burden of export promotion schemes, danger of circular trading, and risk of importing outdated machinery. Sometimes policy fails to take a holistic view of trade issues. Other issue is relative importance of the home market, the nature or the degree of State intervention and recessionary conditions in the global market. India’s exports have suffered due to structural constraints operating both on the demand and supply side.
  • On the demand side exports have continued to undergone the problems of adverse world trading environment, protectionist sentiments in the developed countries in the guise of technical standards, environmental and social concerns and tariff differentials in imports by the developed countries. At the supply end, the factors that have constrained exports from India include infrastructure constraints, high transaction costs, inflexibilities in labour laws, quality problems, constraints in attracting FDI in the export sector, etc

Conclusion

  • It is summarized that foreign trade has significant function in the fiscal development of any nation. India has made strong foreign trade policies and reformed these from time to time with the process of globalisation and liberalization. Since 1991, India’s foreign trade considerably transformed. India’s major exports include manufacturing and engineering goods. India has good trading relations with all developed countries in the world. More than fifty percent of India’s total export trade is with Asia and ASEAN region and about sixty percent of India’s total imports is with the same countries. India’s wealth previously was agricultural economy.
  • India’s major requirement use to be food grains and other goods in import with fast industrialization, the composition of India’s imports goods changed and needed chemicals, fertilizers and machinery which were required to meet the developmental requirements of country. In the composition of export; country sells agricultural products such as tea, spices, and other raw materials. However, with the industrialization of the financial system, compositions of exports changed. Currently, India exports products such as machinery chemicals and marine products. This may enhance the fiscal condition of India.

Growth and trade – volume, composition and direction of exports and imports

The composition of commodities in India’s international trade has been undergoing a change over the years. The share of agriculture and allied products has declined, whereas, shares of petroleum and crude products and other commodities have increased. The shares of ore minerals and manufactured goods have largely remained constant over the years from 2009-10 to 2010-11 2018-19.

The decline in traditional items is largely due to the tough international competition. Amongst the agricultural products, there is a decline in the export of traditional items, such as coffee, cashew, etc., though an increase has been registered in floricultural products, fresh fruits, marine products and sugar, etc.

Manufacturing sector alone accounted for 73.6 per cent of India’s total value of export in 2016-17. Engineering goods have shown a significant growth in the export. China and other East Asian countries are our major competitors. Gems and jewellery contributes a larger share of India’s foreign trade.

Changing Patterns of the Composition of India’s Import

India faced serious food shortage during 1950s and 1960s. The major item of import at that time was foodgrain, capital goods, machinery and equipment. The balance of payment was adverse as imports were more than export in spite of all the efforts of import substitution. After 1970s, foodgrain import was discontinued due to the success of Green revolution but the energy crisis of 1973 pushed the prices of petroleum, and import budget was also pushed up. Foodgrain import was replaced by fertilisers and petroleum. Machine and equipment, special steel, edible oil and chemicals largely make the import basket.

Direction of Exports

India’s largest export partner has been Asia. Exports to Asia have grown by more than 23.0% (CAGR), from USD 22.2 billion in 2009 to USD 150.4 billion in 2019. The next largest export destination is Europe (USD 58.8 billion in 2019), followed by America (USD 53.4 billion).

Although, nominally speaking, trade with Europe and America has risen over the 10 year period under consideration their share in overall exports has declined. Share of exports to Europe declined from 25.7% in 2013 to 19.6% in 2019, while that of America came down from 24.6% in 2013 to 17.8% in 2019. Coupled with increased trade integration with Asia, this shift of export direction away from America and Europe may be attributed to the moderation in economic activity in these countries, which has caused import demand from these countries (i.e. exports from India and others) to contract.

Direction of Imports

A major part of India’s imports are sourced from Asia itself (57.7% of overall imports which are due to the POL bill. Imports from Asia stood at USD 283.0 billion in 2019, registering growth of 26.0% over FY03 (CAGR, 2009-2019). In fact, there appears to be substantial difference in the value of imports from Asia and the next largest import partner of the country. After Asia, the next largest import sources is Europe (USD 91.7 billion), followed by America (USD 58.2 billion).

Recent trends

Exports inMay 2019 were USD29.99billion, as compared to USD28.86billion in May 2018, exhibiting a positive growth of 3.93per cent. In Rupee terms, exports were Rs. 2,09,280.62 crore in May 2019, as compared to Rs. 1,94,928.45crore in May 2018, registering a positive growth of 7.36per cent.

Cumulative value of exports for the period April-May 2019-20 was USD56.07billion (Rs.3,90,301.96 crore) as against USD54.77billion (Rs.3,64,981.41 crore) during the period April-May 2018-19, registering a positive growth of 2.37per cent in Dollar terms (6.94per cent in Rupee terms).

Imports in May 2019 were USD45.35billion (Rs. 3,16,448.93 crore), which was 4.31per cent higher in Dollar terms and 7.76per cent higher in Rupee terms over imports of USD43.48billion (Rs.2,93,660.48 crore) in May 2018. Cumulative value of imports for the period April-May 2019-20 was USD86.75billion (Rs.6,03,881.86 crore), as against USD83.11billion (Rs.5,53,745.15 crore) during the period April-May 2018-19, registering a positive growth of 4.39per cent in Dollar terms (9.05per cent in Rupee terms).

Composition of India’s export      

The top items of agriculture exports include :

  • Fish Products,
  • Rice,
  • Oil Cakes
  • Fruits and Vegetables

The overall export performance of ores and minerals is not satisfactory. In percentage terms, the export performance of ores and mineral has increased from 4.4% in 1990-91 to 5.8 % in 2018-19.

Foreign trade policy of India

In the mid-term review of Foreign Trade Policy (FTP) 2015–20, the Ministry of Commerce and Industry enhanced the scope of Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS), increased MEIS incentive raised for ready-made garments and made-ups by 2% and raised SEIS incentive by 2% and increased the validity of Duty Credit Scrips from 18 months to 24 months.

In April 2020, the Government extended FTP for one more year, up to March 31, 2021. In August 2019, the Ministry of Commerce planned to introduce new FTP aimed at providing incentives and guidelines for increasing export in the next five financial years, starting FY20.

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