By going through these Maharashtra State Board Class 12 Economics Notes Chapter 10 Foreign Trade of India students can recall all the concepts quickly.
Maharashtra State Board Class 12 Economics Notes Chapter 10 Foreign Trade of India
Internal Trade:
It means exchange of goods and services within the country.
Foreign Trade:
It means exchange of goods and services between two or more countries. Foreign trade is the exchange of goods and services between two or more countries, Foreign trade is the trade across the boundaries of a country.
Definitions –
According to Wasserman and Hultman, “International Trade consists of transaction between residents of different countries.”
Types of Foreign Trade:
- Import Trade
- Export Trade
- Entrepot Trade
→ Import Trade: It is buying of goods and services from other country by home country. Excessive import can have a negative impact on the home country. E.g. India buying petroleum from Iraq, Kuwait, etc.
→ Export Trade: It is selling of goods and services by home country to another country. Excessive export can have a positive impact on the home country. E.g. India exporting tea and spices to USA, China, etc.
→ Entrepot Trade: It means buying of goods and services from one country and then selling them to another country. E.g. England importing cotton from India making readymade garments from it and selling them to Malaysia.
Role / Need / Importance of Foreign Trade:
→ To earn foreign exchange: Foreign trade plays a very important role in earning foreign exchanges. This foreign exchange can be used to import advanced technology and machinery from developed countries.
→ Encourage investment: Foreign trade leads to an increase in total investment in an economy. The increase in investment helps to produce more goods and services for export.
→ Division of labour and specialization: It helps to increase the productivity of a firm or economy. Under specialization, specific work is given to the workers within a production process. E.g. some workers will design the cars, some workers will work on assembly line, some workers will work on testing cars, some workers will work on marketing of cars.
→ Optimum allocation and utilization of resources: Due to foreign trade, those goods are produced which have demand in international market. There is maximum allocation and utilisation of resources to produce more goods and services for export.
→ Stability in price level: Foreign trade helps to control the changes in price level by keeping demand and supply position stable.
→ Availability of multiple choices: Due to availability of imported goods, its help to improve standard of living of the people in the country.
→ Promotes economic development: The foreign trade plays a major role in increasing the national income, standard of living of the people, increased collaboration with foreign government or organisation, etc. which stimulates economic development.
→ Brings reputation and helps earn goodwill: Exporting country can earn reputation and goodwill in the international market through foreign trade. E.g. Japan in electronic goods – Panasonic, Canon, Sony, Hitachi, Germany in automobile – BMW, Audi, Mercedes-Benz, Volks Wagen, Porsche, USA in computers -Dell, HP, IBM, USA in food – Mcdonald, KFC.
→ Helpful during natural calamities: Foreign trade enables a country to import food grains and medicines from other countries to help the affected people during natural calamities.
→ Promotes World Peace: Foreign trade brings countries to closer, leading to world peace and integrity.
Features of Composition of India’s Foreign Trade:
There are many changes in India’s foreign trade from last seven decades (70 years)
→ Gross National Income: India’s foreign trade has great significance for its GNP. It increased up to 48.8% in the year 2016-17.
→ Change in composition of exports: After independence, there was change in the composition of India’s export trade from primary products to manufactured goods.
→ Change in composition of imports: After independence, there was change in the composition of India’s import trade from consumer goods to capital goods.
→ Development of new ports: India’s foreign trade is handled mainly by Mumbai, Calcutta and Chennai ports. India has developed more new ports at Kandla, Cochin, Vishakhapatnam, etc.
→ Oceanic Trade: Most of India’s foreign trade is by sea. About 68% of India’s trade is by sea.
→ Rise in volume and value of trade: After economic reforms (1990-91), the volume and value of India’s imports and export has increased.
Trends in India’s Export:
Engineering goods: Engineering goods includes transport equipment, automobiles and auto components, machinery and instruments. India’s top export item is engineering goods, accounting for 22.5 per cent in India’s total export in 2014-15 and this share has increased up to 25% in the year 2017-18. India is exporting engineering goods to Sri Lanka, UAE and USA.
→ Petroleum products: India’s refining capacity has increased significantly since 2001-02, due to which India turned a net exporter of petroleum refinery products. In the year 2013-14 the share of petroleum products in total export was 20.1% and in the year 2016-17, it declined upto 11.07%.
→ Chemicals and chemical products: It included drugs (medicines and pharmaceuticals). This is one sector where India is highly competitive on both quality and pricing factor. India became global hub for pharma production. India is exporting its chemical and chemical products to USA, China and Germany. The share of this item was 10.4% in 2014-15.
→ Gems and Jewellery: Gems and Jewellery plays an important role in earning the foreign exchange for India. In the year 2014-15 the share of Gems and Jewellery was 13.3% in India’s total export and it declined upto 5.32% in the year 2018-19.
→ Textiles and readymade garments: India’s readymade garments have huge demand in the international market. India is exporting textiles to USA, China and Bangladesh. India is exporting readymade garments to USA, UAE and UK. In the year 2014-15 India’s export of textile and garment was 11.3% of total export of India and it has declined up to 6.3% in the year 2016-17. ,
Trends in India’s Imports:
India is importing various goods from other countries. Following are the major imported goods of India.
→ Petroleum: It has largest share in India’s import. In the year 2016-17, it has 22.6% share in India’s total import.
→ Gold: After petroleum, the second most imported item is gold. In the year 2011, India’s import of gold was $53.9 billion and in the year 2018-19 it declined upto $32.8 billion.
→ Fertilizers: The share of fertilizers in import expenditure declined from 4.1% in 1990-91 to only 1.3% in 2016-17.
→ Iron and Steel: In the year 2016-17 the share of iron and steel in India’s total import was 2.1%.
Balance of Payments (BOP):
→ According to Ellsworth, “Balance of payments is a summary statement of all the transactions between the residents of one country and the rest of the world.”
→ According to Walter Krause, “The balance of payments of a country is a systematic record of all economic transactions completed between its residents and the rest of the world during a given period of time usually a concept of year. ”
Balance of Trade:
→ According to Bentham, “Balance of trade of a country is the relation over a period between the values of her exports and imports of physical goods.”
→ According to Samuelson, “It export value is greater than the import value, it is called as trade surplus and if import value is greater than export value, then it is called as trade deficit.”