Chapter Notes

INTERNATIONAL TRADE

International Trade, the exchange of goods and services between countries, is essential because no single country is completely self-sufficient. India's international trade has transformed significantly in recent years in its volume (how much is traded), composition (what is traded), and direction (who we trade with).

While India's share of total world trade is about one per cent, it remains a very important player in the global economy. The value of India's external trade has seen a massive increase, growing from Rs. 1,214 crore in 1950-51 to Rs. 77,19,796 crore in 2020-21.

This sharp rise is due to several factors:

• Growth in the manufacturing sector.
• Liberal government policies that make trade easier.
• Diversification of markets, meaning India is trading with more countries than before.

Changing Pattern of the Composition of India's Exports

The types of goods India sells to other countries have been changing over time.

• Decreasing Share: The share of agriculture and allied products and manufactured goods in total exports has decreased. The decline in traditional agricultural items like cashews is mainly due to tough international competition.
• Increasing Share: The share of crude and petroleum products has increased.
• Constant Share: The share of ores and minerals has remained largely constant between 2015-16 and 2021-22.

Despite a decrease in its overall share, the manufacturing sector is still the backbone of India's exports, accounting for 67.8 per cent of the total export value in 2021-22. Within this sector, engineering goods have shown significant growth. Gems and jewellery also make up a large portion of India's foreign trade.

However, India faces strong competition in the manufacturing sector from China and other East Asian countries.

Changing Patterns of the Composition of India's Import

The types of goods India buys from other countries have also seen major shifts, reflecting the country's changing economic needs.

• 1950s and 1960s: During this period, India faced serious food shortages. The main imports were foodgrain, capital goods, machinery, and equipment. The country had an adverse balance of payments because imports were much higher than exports.
• Post-1970s: The success of the Green Revolution ended the need for large-scale foodgrain imports. However, the energy crisis of 1973 caused a sharp rise in global petroleum prices, which significantly increased India's import budget. Imports shifted from foodgrain to fertilisers and petroleum.

Today, the import basket is dominated by:

• Petroleum Products: The import of petroleum products has risen, indicating increasing industrialisation and a better standard of living, as petroleum is used both as a fuel and an industrial raw material.
• Capital Goods: The import of capital goods (like machinery) has shown a steady decline.
• Other Major Imports: These include pearls, precious and semi-precious stones, gold and silver, and non-ferrous metals.

Direction of Trade

India maintains trade relationships with most countries and major trading blocs around the world.

• Region-wise data from 2021-22 shows that the Asia and ASEAN region is India's largest trading partner in terms of imports.

To boost its role in global trade, India has been adopting measures like:

• Import liberalisation (making it easier to import goods).
• Reduction in import duties (lowering taxes on imported goods).
• Delicensing (removing the need for a license for many industries).

Most of India's foreign trade is conducted through sea and air routes. A smaller portion is carried out via land routes with neighbouring countries like Nepal, Bhutan, Bangladesh, and Pakistan.

Sea Ports as Gateways of International Trade

With a long coastline on three sides, India has a long history of sea trade. Ports act as crucial "gateways" for international trade.

• Historical Development: The British developed ports primarily as "suction points" to extract resources from their hinterlands (the area served by a port). They built railways to connect inland markets to these ports.
• Impact of Partition: After independence in 1947, India lost two major ports: Karachi port went to Pakistan, and Chittagong port went to what is now Bangladesh. To compensate, new ports like Kandla in the west and Diamond Harbour near Kolkata were developed.
• Modernisation: Today, Indian ports handle huge volumes of trade and are equipped with modern infrastructure. The government has invited private companies to help modernise the ports to meet international standards.

India has 12 major ports and about 200 minor or intermediate ports.

• Major Ports: Policy and regulation are handled by the central government. They handle the majority of the total cargo traffic.
• Minor Ports: Policy and functions are regulated by state governments.

Some of the Indian ports along with their hinterlands are as follows:

• Deendayal Port (Kandla): Located in the Gulf of Kuchchh, Gujarat. It was developed to serve western and north-western India and to reduce pressure on Mumbai port. It primarily handles petroleum products and fertilisers.
• Mumbai Port: A natural harbour and the biggest port in India. It is strategically located on major sea routes connecting to the Middle East, Europe, and North America. Its hinterland includes Maharashtra, Gujarat, M.P., U.P., and parts of Rajasthan.
• Jawaharlal Nehru Port: Located at Nhava Sheva, near Mumbai. It was developed as a satellite port to relieve pressure on Mumbai Port and is the largest container port in India.
• Marmagao Port: A natural harbour in Goa, located at the entrance of the Zuari estuary. It is a major exporter of iron ore, primarily to Japan. Its hinterland includes Goa, Karnataka, and Southern Maharashtra.
• New Mangalore Port: Located in Karnataka. It exports iron ore, iron concentrates, coffee, tea, and granite, and handles imports like fertilisers and petroleum products. Its main hinterland is Karnataka.
• Kochchi Port: A natural harbour in Kerala, located at the head of Vembanad Kayal. Known as the 'Queen of the Arabian Sea', it is advantageously located near the Suez-Colombo sea route. It serves Kerala, southern Karnataka, and south-western Tamil Nadu.
• Kolkata Port: A riverine port located on the Hugli river, 128 km inland. Developed by the British, its importance has declined due to diversion of trade to other ports and silt accumulation in the river. Its vast hinterland includes West Bengal, Bihar, Jharkhand, U.P., Sikkim, and the north-eastern states. It also provides port facilities to land-locked neighbours Nepal and Bhutan.
• Haldia Port: Located 105 km downstream from Kolkata. It was built to reduce congestion at Kolkata port and handles bulk cargo like iron ore, coal, and petroleum products.
• Paradwip Port: Situated in the Mahanadi delta in Odisha. It has a very deep harbour suitable for large vessels and was developed mainly to handle large-scale iron-ore exports. Its hinterland includes Odisha, Chhattisgarh, and Jharkhand.
• Visakhapatnam Port: A land-locked harbour in Andhra Pradesh, connected to the sea by a man-made channel. It handles iron ore, petroleum, and general cargo. Its hinterland covers Andhra Pradesh and Telangana.
• Chennai Port: One of the oldest ports on the eastern coast, it is an artificial harbour built in 1859. The shallow waters near the coast make it less suitable for large ships. Its hinterland is Tamil Nadu and Puducherry.
• Ennore Port: A newer port developed 25 km north of Chennai to relieve pressure on the Chennai port.
• Tuticorin Port: Also developed to ease the load on Chennai port. It handles a variety of cargo, including coal, salt, food grains, and edible oils.

Airports

Air transport is vital for international trade, especially for high-value or perishable goods that need to be transported quickly over long distances.

• Advantages: It is the fastest mode of transport.
• Disadvantages: It is very costly and not suitable for heavy and bulky commodities.

Because of its high cost, air transport's share in international trade is smaller compared to sea routes. In 2016-17, there were 25 major airports in the country. Since 2017, the UDAN scheme has helped operationalize dozens of unserved and underserved airports, improving air connectivity across India.