View of DYNAMICS OF FOREIGN TRADE POLICY IN INDIA

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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING Peer Reviewed and Refereed Journal (International Journal) ISSN-2456-1037

Vol.04,Special Issue 05, (ICIR-2019) September 2019, Available Online: www.ajeee.co.in/index.php/AJEEE

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DYNAMICS OF FOREIGN TRADE POLICY IN INDIA Neelam Shekhawat

Scholar (Enrol. No.:JVR-I/18/10044) Dr. Shahnawaz Alam

Guide

Department of Humanities, Jayoti Vidyapeeth Women’s University, Jaipur

Abstract- Foreign trade plays a vital role in the Indian economy. As the country need to import diverse products so foreign trade is extremely important to country. India exports vast number of products and also imports an equal amount of other products. Although India has steadily opened up its economy, its tariffs continue to be high when compared with other countries, and its investment norms are still restrictive. This leads some to see India as a ‘rapid globalize’ while others still see it as a ‘highly protectionist’ economy.

Nonetheless, in recent years, the government’s stand on trade and investment policy has displayed a marked shift from protecting ‘producers’ to benefiting ‘consumers’. India is now aggressively pushing for a more liberal global trade regime, especially in services. This paper is an attempt to analyze the major changes in volume, composition and direction of Indian Foreign Trade.

Keywords- Trade, Investment, policy, Development Market, Goods 1. INTRODUCTION

No country is self-contained to produce the goods and services that it calls for, which leads to trade among nations and acts as an engine for economic growth as exports are imperative to earn foreign exchanges and availability of wider market while imports facilitate the nation by providing the goods and services not available within the country itself. The Indian economy has gained considerable momentum over the last one decade, by achieving and sustaining an annual GDP growth rate of over 7 percent. This high growth rate can be in part attributed to the growing contribution of the export sector to the economy (Mukherjee, S. and Mukherjee, S., 2012). Export is pre-eminent for the growth and development of the economy as it leads to the earning of valuable foreign exchange which assists in the growth of the economy (Goyal, S. 2012). India, since the implementation of new economic policy in 1991, has been experiencing a high rate of economic growth along with a high rate of export growth. Though the growth slowed down to some extent during the period of the Asian currency crisis of 1997, it once again picked up since the beginning of the 21st century (Sultan, Z.A. 2012). The import substitution (IS) strategy remained as the trade policy for the long time in India as a major drawback for economic growth. Indian policymakers realized India needs the rapid industrialization, which was possible through suitable trade policy reform. Indian export grew very slowly as the focus was the domestic.

2. INTERNATIONAL TRADE POLITICS OF INDIA

The foreign or international trade policy of India relies solely on the Export Import simply known as the EXIM Policy of Govt. of India. This is being regulated and governed by the Act of Foreign Trade Development and Regulation Act, 1992. The key governing body which is directly associated with the EXIM Policy is the DGFT (Directorate General of Foreign Trade).

The contemporary or recent act of Foreign Trade is under implementation after replacement of the earlier law which was Import and Exports (Control) Act, 1947. After independence, there were no specific or strict rules regarding the EXIM protocols. In the new Foreign Trade Policy which is known as FTP 2015 - 2020, it is broadcasted that there will be the special incentives and promotions for the exporters in different streams. Govt. of Indian is promoting and attracting the domestic experts to work on 'Make in India' so that the Indian products can be sold in International Market and overall economy can be strengthened.

Govt. of India is predicting the exports of 900 billion dollars by year 2020 after implementation of the new foreign trade policy.

Exports and imports- India exports approximately 7500 commodities to about 190 countries, and imports around 6000 commodities from 140 countries. (Chakra borty, Subhayan) India exported US$318.2 billion and imported $462.9 billion worth of commodities in 2014. The Government of India's Economic Survey 2017-18 noted that five

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states — Maharashtra, Gujarat, Karnataka, Tamil Nadu and Telangana — accounted for 70% of India's total exports. It was the first time that the survey included international export data for states. The survey found a high correlation between a state's Gross State Domestic Product (GSDP) per capita and its share of total exports. With a high GSDP per capita but low export share, Kerala was the only major outlier because the state's GSDP per capita was heavily influenced by remittances. The survey also found that the largest firms in India contributed to a smaller percentage of exports when compared to countries like Brazil, Germany, Mexico, and the United States. The top 1% of India's companies accounted for 38% of total exports.

3. MAJOR STRATEGIES AND TRADE POLICY REFORMS

To achieve a respectable share of 5 per cent in World exports, India’s export growth rate (CAGR) has to be around 26.5 per cent for at least 5 years (2017-2021) assuming that global growth continues at the CAGR of 1.5 per cent (2010-15). For this some major strategies and trade policy reforms are needed along with specific measures.

1) Demand based export basket diversification rather than a mere supply based strategy as the ranks of items at 4 digit level in world top imports and ranks of India’s exports of these items to the world show a great deal of mismatch with India exporting 96.5 per cent of items in the World’s top 100 import items at 4 digit level and 83.2 per cent at 6 digit level in terms of numbers in 2015, which however constitute only 1.6 per cent of top 100 world imports in value terms.

2) Rationalizing tariffs as the realized tariffs (BCD) is very low at 2.8 per cent in 2015- 16 and less than one fourth the average applied tariffs due to various exemptions. If refunds and customs duty drawbacks are deducted from gross customs revenue then the net realized tariffs (BCD) would be still less. Though different rates of tariffs are levied for various reasons, there is scope for reducing average applied tariffs by selectively reducing tariffs across many lines, while retaining higher tariffs for sensitive and important items. Consequently WTO bound tariffs could also be reduced which can help India to take a more proactive role in WTO and bilateral negotiations.

3) Streamlining Export Promotion Schemes as many duties have been subsumed under GST and if tariffs are reduced to realized or near realized levels, some export promotion schemes can be phased out. The duty drawback rates can also be revised downwards. The revenue saved could be used for export marketing efforts.

4) Developing on a war footing world class export infrastructure and logistics especially port-related

5) FDI linked and Value Added Exports particularly high-tech exports as in China and some ASEAN countries.

6) Having useful FTAs/CECA’s with some major countries while actively expanding engagement with BRICS and ASEAN where India enjoys competitive advantage.

7) National Priority Sector for Exports and greater States’ participation in exports by linking devolution of funds to states with export effort of states.

8) Formulating a clear-cut Agri Trade Policy.

4. TRENDS IN INDIA FOREIGN TRADE

The trends in India’s foreign trade are discussed on the basis of the following parameters:

1) Changes in Value of Foreign Trade

2) Changes in the Composition of Foreign Trade

3) Changes in the Direction of Foreign Trade In trends of India’s foreign trade, these parameters are discussed in detail. The detail is supported by the relevant data.

5. OBJECTIVE

1) To examine pattern of India's foreign trade in the Post- Reform Era and Pre Reform Era.

2) To assess the role of Foreign Trade in India's in terms of their share of exports and imports in World's exports and Imports.

3) To analyze the composition and direction of India’s exports and imports

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The research paper is entirely based on the secondary data. The attempt is to be made to present a comprehensive picture of Indian external sector. Basic data were collected from Economic Surveys, Government of India and other data are collected from various issues of annual report published by Directorate General of Foreign Trade, Ministry of Commerce and Industry, Government of India.

7. REVIEW OF LITERATURE

Keller, W. et. al. (2011) this paper concentrates on the exchange of China in the previous 150 years, beginning from the first opening of China after the Opium War. The primary motivation behind the paper is to recognize what is (and was) China's "ordinary" level of remote exchange, and how these levels changed under distinctive exchange administrations, from 1840 to the present. This work show new proof on China's remote exchange amid the arrangement port period (1842–1948), drawn from disaggregated exchange information gathered by the Chinese Maritime Customs Service, that yields vital discoveries for momentum research.

Mehta, A. ET. al. (2012) this work analyze the impacts of exchange and administrations liberalization on pay imbalance in India. The paper finds that work reallocations and compensation shifts owing to liberalization represent at most 29% of the increment in imbalance somewhere around 1993 and 2004, and that the impacts of administrations changes are commonly bigger than those of exchange liberalization. Interestingly, 30–66%

of the increment in pay imbalance is because of changes in industry wages and aptitude premiums that can't be experimentally connected to liberalization. These outcomes propose that if liberalization did, truth be told, contribute essentially to expanded disparity, the heft of its belongings don't wait in between industry pay and ability premiums however are subsumed by general harmony impacts.

Saboori, B. et. al. (2012) This study examines the dynamic relationship among carbon dioxide (CO2) emissions, economic growth, energy consumption and foreign trade based on the environmental Kuznets curve (EKC) hypothesis in Indonesia for the period 1971–2007, using the Auto Regressive Distributed Lag (ARDL) methodology. The results do not support the EKC hypothesis, which assumes an inverted U-shaped relationship between income and environmental degradation. The long-run results indicate that foreign trade is the most significant variable in explaining CO2 emissions in Indonesia followed by Energy consumption and economic growth. The stability of the variables in estimated model is also examined. The result suggests that the estimated model is stable over the study period.

Prasad et.al (2014): The study suggested various general and specific policy measures like, export infrastructure, market diversification, export promotion schemes and formation of Regional Trading Agreements, etc. to compete in global emerging trade scenario by analyzing the current trade scenario in global as well as in Indian trade.

Research Design: The present study is descriptive as well as analytical in nature as it provides the description of the current state of the country’s foreign trade. The study is analytical one as it strives to establish the relationship among variables and to know the impact of a change in exports on foreign exchange reserves of the economy.

Scope of the study

In this research work, the empirical review on the trade policies of India with respect to the global market is addressed. In this paper, it is depicted that Indian economy is one of the growing economy with the new foreign trade policy.

8. CONCLUSION

Trade flows for India have grown at a robust pace during the past decade (FY03 to FY13). In general, one may state, that India has expanded its commodity basket of trade from primary agro-products to manufactured goods and petro-related products; with Asia emerging as the largest trade partner in recent years. It is interesting to note that there have been some variations in the commodity composition and direction of trade, although not alike for imports and exports.

Exports have registered shift in commodity compositions, with share of manufacturing goods coming down to give way to export of petroleum and crude products.

In a way this does reflect India’s strength in refining capability. In terms of export- destination, Asia has been and continues to be a major partner through the years. This has

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helped to diversify our exports basket and buffered to an extent the impact of any slowdown in the western world.

Imports on the other hand, have registered shifts in country-sources as well as commodity basket. While POL share has increased, within non-POL category, there has been an increase in import of gold, coal and ores in recent times. From a geographically-dispersed country-source profile, imports sources are now concentrated in the Asia region itself.

Partly, this is due to the higher import of POL products and also the emergence of China as a major trading partner.

Trade Policy- as a conscious change in trade policy, India has moved to effective trade through reduction in transportation costs, diversifying commodity basket and boosting regional trade. More specifically a lot of reforms have been ushered by the EXIM policies over the years to facilitate the growth of exports. This has also ensured some ring fencing against external vulnerabilities and shocks originating in advanced economies.

Global dynamics- advanced economies have in the last few years registered slowdown in economic activity. This has caused production activity in advanced economies to moderate (which impacts exports to India i.e. India’s imports) coupled with a contraction in demand for imported goods from advanced countries (i.e. India’s exports). Trade flows to these regions have hence, been affected, giving way to increased interregional trade. Trade with Europe however, appears to be impacted more adversely when compared with India’s trade with America.

REFERENCES

1. Chakraborty, Subhayan (29 January 2018). "Only 5 states account for 70% of exports, Economic Survey shows". Business Standard India Retrieved 11 February 2018

2. Economic Survey 2018: 5 states show the way with 70% of exports, enjoy higher standard of living". The Indian Express. 30 January 2018. Retrieved 11 February 201

3. Mukherjee, S. and Mukherjee, S. (2012), “Overview of India’ Export Performance: Trends and Drivers”, Indian Institute of Management Bangalore, Wp. No: 363. Prasad,

4. H., Sathish, R. and Singh, S.S. (2014), “India’s Merchandise Exports: Some Important Issues and Policy Suggestions” Department of Economic Affairs, GOI, Wp. No. 3-DEA.

5. Keller, W., Li, B., & Shiue C. H. (2011) China’s foreign trade: Perspectives from the past 150 years. The World Economy, 34(6), 853-892.

6. Mehta, A., & Hasan, R. (2012) the effects of trade and services liberalization on wage inequality in India.

International Review of Economics & Finance, 23, 75-90. Saboori, 7B., Sulaiman, J. B., & Mohd, S.

(2012). An empirical analysis of the environmental Kuznets curve for CO2 emissions in Indonesia: the role of energy consumption and foreign trade. International Journal of Economics and Finance, 4(2), p243