1. FOREIGN TRADE
AND
BALANCE OF PAYMENT

2. MEANING
“ International trade is trade between residents of one country and residents of other countries of the world.”
For example, Trade between India and United states is called international trade or Foreign Trade.
Foreign trade helps a country to utilize its natural resources and to export its surplus production.

3. FOREIGN TRADE OF INDIA Volume of foreign trade.
Composition of foreign trade.
Direction of foreign trade.
Balance of trade.

4. VOLUME OF FOREIGN INDIA’S TRADE (RSCRORE)
YEAR
IMPORTS
EXPORTS
TOTAL
650
600
1,250
1,122
642
1,764
1,634
1,535
3,169
12,549
6,711
19,260
43,193
32,558
75,751
2,30,873
2,03,571
4,34,444
10,12,312
6,55,864
16,68,176
13,74,436
8,40,755
22,15,231
13,63,736
8,45,534
22,09,270
16,83,467
23,45,463

5. It is clear from the above table:
Volume of foreign trade in was rs.1,250 crore. In , it increased to rs. 38,11,422 crore. Volume of foreign trade increased by 3049 times.
In ,total imports were rs.650 crore which rose to rs crore in Thus imports increased by 39.3% times.
In ,value of total exports was rs.600 crore. It rose to rs crore in Thus exports increased by times.
Higher growth rate in exports than imports in recent years is a welcome sign in India’s foreign trade.

6. COMPOSITION OF FOREIGN TRADE
(A) Change in composition of exports
Decline in percentage share of agriculture products in total exports.
Increase in percentage share of manufactured goods in total exports.
Change in composition of agricultural exports.
Exports of petroleum products.
Increase importance of exports of gems and readymade garments.

7. CHANGE COMPOSITION OF INDIA’S EXPORTS (RS CRORE)
Commodity
Tea 80
4079
Cotton Clothes
114
21624
Rice -
24109
Iron ore 18
22184
Coffee 10
4535
Chemicals 5
177872
Gems and precious stone
214889
Total Exports
600

8. (B) Change in composition of imports
Decline in the imports of agricultural products.
Petroleum products enjoy first place in imports.
Increase in the imports of capital goods.
Increase in imports of raw materials and intermediate goods.
Increase in imports of chemical fertilizers.

9. CHANGE IN COMPOSITION OF INDIA’S IMPORTS (RS CRORE)
Commodity
Iron and steel 20
57552
Machinery 91
158611
Transport equipment 41
67474
Food grains
100
5691
Chemicals
.57
16595
Fertilizers 12
53311
Paper, paperboard 10
12305
Petroleum 87
743075
Total Imports
650

10. DIRECTION OF FOREIGN TRADE
Changes in the direction of foreign trade
Organisation of economic co-operation and development (OECD).
Organisation of petroleum exporting countries (OPEC).
Share of Eastern European countries.
Trade with developing countries.

11. DIRECTION OF INDIA’S FOREIGN TRADE
Country
% of exports
% of imports UK
3.5
1.5
USA
10.9
5.9
Japan
2.0
2.3
Russia .5
1.2
China
6.5
10.7 EU
20.2
13.3
OPEC
16.6
32.1
Developing Countries
42.5 33

12. BALANCE OF TRADE
“ Balance of trade of a country is the relation over a period between the values of its exports and imports of physical goods.”
Balance of trade may be of three kinds:
Surplus or Favourable balance of trade: A country may have favourable or surplus balance of trade when the total value of the goods exported by its more than the total value of goods imported by it. (Exports > imports)

13. Deficit or Unfavourable balance of trade: A country may have unfavourable or deficit balance of trade when the total value of goods imported by it is more than the total value of goods exported by it.
( Imports > Exports)
Equilibrium in Balance of trade: A country may have equilibrium in balance of trade when the total value of the goods exported by it is equal to the total value of the goods imported by it.
( Exports =Imports)

14. FEATURES OF INDIA’S FOREIGN TRADE
Increasing share of gross national product.
Less percentage in world trade.
Increase in volume and value of foreign trade.
Change in the composition of exports.
Change in the composition of imports.
Direction of foreign trade.
Balance of trade.
Foreign trade by government.
State control over foreign trade.

15. BALANCE OF PAYMENTS
Balance of payments refers to the recording of all economic transactions of a given country with rest of the world. Balance of payments is a statement of accounts of these receipts and payments. Difference in the value of imports and exports of all the three items ,i.e., visible, invisible, and capital transfers is taken into account, it is called Balance of payments.

16. FORMS OF BALANCE OF PAYMENTS
Current Account: Balance of payments on current account includes the value of imports and exports of both visible and invisible items. Current account transactions are called account of actual transactions of import and export of goods and services.
Capital Account: Capital accounts refers to financial transactions. It mainly includes foreign investment and external loans. All kinds of short term and long term international capital transfers, foreign debts, foreign investments etc. are also included in capital account.
Overall Balance Of Payments: Total of a country’s balance of payments on current account and capital account is known as overall balance of payments.

17. DISEQUILIBRIUM IN BALANCE OF PAYMENTS
Favourable Balance of Payments: When receipts are more than payments then balance of payments turns favourable. This situation increases foreign exchange reserves. It is also known as surplus balance of payments.
Unfavourable Balance of Payments: Balance of payments is unfavourable when its payments are more than its receipts. This situation reduces foreign exchange reserves. It is also known as deficit balance of payments.

18. CAUSES OF UNFAVOURABLE BALANCE OF PAYMENTS
Import of machinery.
More demand of consumption goods.
Price disequilibrium.
Foreign competition.
Less growth in exports.
Expenditure on foreign embassies.
Gulf war.
Import of war equipments.

19. MEASURES TO CORRECT DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS
Promotion of exports.
Increase in production.
Trade agreements.
Attraction to foreign tourists.
Devaluation of Indian currency.
Deflation.
Import substitution.
Setting up of special economic zones.
Less consumption of crude oil.