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India: Trade
Country Study > Chapter 6 > Character and Structure of the Economy > Foreign Economic Relations > Trade

TRADE


Despite its size, India plays a relatively small role in the world economy. Until the 1980s, the government did not make exports a priority. In the 1950s and 1960s, Indian officials believed that trade was biased against developing countries and that prospects for exports were severely limited. Therefore, the government aimed at self-sufficiency in most products through import substitution, with exports covering the cost of residual import requirements. Foreign trade was subjected to strict government controls, which consisted of an all-inclusive system of foreign exchange and direct controls over imports and exports. As a result, India's share of world trade shrank from 2.4 percent in FY 1951 to 0.4 percent in FY 1980. Largely because of oil price increases in the 1970s, which contributed to balance of payments difficulties, governments in the 1970s and 1980s placed more emphasis on the promotion of exports. They hoped exports would provide foreign exchange needed for the import of oil and high-technology capital goods. Nevertheless, in the early 1990s India's share of world trade stood at only 0.5 percent. In FY 1992, imports accounted for 9.3 percent of GDP and exports for 7.7 percent of GDP.

Based on trends throughout the 1980s and early 1990s, it appears likely that the balance of trade will remain negative for the foreseeable future. Import controls and devaluation of the rupee allowed the trade deficit to fall to US$1.6 billion in FY 1991. However, it widened to US$3.3 billion in FY 1992 before falling to an estimated US$1 billion in FY 1993. However, one optimistic sign, noted by India's minister of finance in March 1995, was that exports had come to finance 90 percent of India's imports, compared with only 60 percent in the mid-1980s.

No one product dominates India's exports. In FY 1993, handicrafts, gems, and jewelry formed the most important sector and accounted for an estimated US$4.9 billion (22.2 percent) of exports. Since the early 1990s, India has become the world's largest processor of diamonds (imported in the rough from South Africa and then fabricated into jewelry for export). Along with other semiprecious commodities, such as gold, India's gems and jewelry accounted for 11 percent of its foreign-exchange receipts in early 1993. Textiles and ready-made garments combined were also an important category, accounting for an estimated US$4.1 billion (18.5 percent) of exports. Other significant exports include industrial machinery, leather products, chemicals and related products.

The dominant imports are petroleum products, valued in FY 1993 at nearly US$5.8 billion, or 24.7 percent of principal imports, and capital goods, amounting to US$4.2 billion, or 21.8 percent of principal imports. Other important import categories are chemicals, dyes, plastics, pharmaceuticals, uncut precious stones, iron and steel, fertilizers, nonferrous metals, and pulp paper and paper products.

India's most important trading partners are the United States, Japan, the European Union, and nations belonging to the Organization of the Petroleum Exporting Countries (OPEC). From the 1950s until 1991, India also had close trade links with the Soviet Union, but the breakup of that nation into fifteen independent states led to a decline of trade with the region. In FY 1993, some 30 percent of all imports came from the European Union, 22.4 percent from OPEC nations, 11.7 percent from the United States, and 6.6 percent from Japan. In that same year, 26 percent of all exports were to the European Union, 18 percent to the United States, 7.8 percent to Japan, and 10.7 to the OPEC nations.

Trade and investment with the United States seemed likely to experience an upswing following a January 1995 trade mission from the United States led by Secretary of Commerce Ronald H. Brown and including top executives from twenty-six United States companies. During the weeklong visit, some US$7 billion in business deals were agreed on, mostly in the areas of infrastructure development, transportation, power and communication systems, food processing, health care services, insurance and financing projects, and automotive catalytic converters. In turn, greater access for Indian goods in United States markets was sought by Indian officials.

In February 1995, in a bid to improve commercial prospects in Southeast Asia, India signed a four-part agreement with the Association of Southeast Asian Nations (ASEAN -- see Glossary). The pact covers trade, investment, science and technology, and tourism, and there are prospects for further agreements on joint ventures, banks, and civil aviation.

India's balance of payments position is closely related to the balance of trade. Foreign aid and remittances from Indians employed overseas, however, make the balance of payments more favorable than the balance of trade.




Last Updated: September 1995


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for India was first published in 1995. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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