February 25, 2024

HPAS/Allied Mains 2022 Answer Writing Challenge Day 199: Model Answer

Question: Discuss the Composition of India’s Foreign Trade. (8 marks/ 120 words)

Answer:

Composition of trade means a study of the goods and services of imports and exports of a country. In other words, it talks about the commodities of imports and the commodities of exports of a country. Therefore, it indicates the structure and level of economic development of a country. Developing countries export raw materials, agricultural products and intermediate goods; developed countries export finished goods, machines, equipments and technique

Composition of Indian foreign trade: Imports

The composition of India’s import basket included oils, pulses, machinery, chemicals, hardware, pharmaceuticals, dyes, yarns, paper, grains, non-ferrous metals, cars, and other items at the time of independence. With the advent of planning and the emphasis on establishing capital goods and engineering sectors, the government was required to purchase a large number of capital equipment and maintenance imports.

 The top eight import items during April-February of FY22 were:

  • Petroleum crude & products (25.7 percent of total imports)
  • Plastic materials, artificial resins, etc. (3.3 percent)
  • Pearls, semi-precious & precious stones (5 percent)
  • Gold (8.2 percent)
  • Electronic goods (11.8 percent)
  • Electrical & non-electrical equipment (6.6 per cent)
  • Inorganic & organic chemicals (5 percent)
  • Coal, coke, etc. (4.9 percent).

In FY22, these main import items accounted for 70.6 percent of overall imports.

 The composition of India’s imports is segregated into three categories: raw materials, capital goods, and consumer products.

 Raw materials

Petroleum oil, lubricants, edible oil, iron and steel, fertilisers, non-ferrous metals, precious stones, pearls, and other commodities fall into this category. The percentage of total imports made up of all of these commodities skyrocketed significantly from 47% in 1960-61 to nearly 80% in 1980-81.

Presently, concerns about supply disruptions have risen due to Russia’s invasion of Ukraine, bringing oil prices to multi-year highs. Given that India imports roughly 80% of its oil, the current circumstance puts its trade deficit in jeopardy.

Petroleum imports increased from USD 13.1 billion in January to USD 15.3 billion on February 22. Due to rising international oil prices, higher mobility, and a corresponding increase in domestic and foreign oil consumption, petroleum imports climbed significantly from USD 72.4 billion in FY21 to USD 141.7 billion in FY22.

 Capital goods

Non-electrical and electrical machinery, metals, locomotives, and other transport equipment, among other things, fall into this category. These items are necessary for the country’s industrial development. Capital goods imports accounted for roughly 32% of overall imports in 1960-61, amounting to around INR 356 crore. This gradually decreased, and in 1992-93, it was around 21%.

 Consumer products

It involves importing electrical items, food grains, medications, and paper, among other things. Until the end of the Third Five-Year Plan, India had a severe food grain shortfall. As a result, India would import enormous amounts of food grains. Presently, India has become self-sufficient in food production.

 Composition of Indian foreign trade: Exports

The top eight export items during the April-February period of FY22 were:

  • Engineering goods (26.9% of total exports)
  • Organic & inorganic chemicals (7.1%)
  • Gems & jewellery (9.4%)
  • Drugs & pharmaceuticals (5.9%)
  • Textiles (3.8%)
  • Electronic goods (3.7%)
  • Petroleum products (14.8%)
  • Cotton yarn/fabs/made-ups, handloom products etc. (3.7%).

These eight goods accounted for approximately 75 percent of overall exports in FY22.

India’s export composition can be classified into two categories: traditional exports and non-traditional exports.

 Traditional products

Traditional items include the export of coffee, tea, jute goods, iron ore, animal skin, cotton, minerals, fish and fish products, etc. These products accounted for nearly 80% of our overall exports at the start of the planning era. However, these items’ contribution is gradually decreasing, while non-traditional items’ contribution is increasing.

 Non-traditional products

Engineering goods, sugar, chemicals, electrical goods, iron and steel, leather goods, gems and jewellery are among the non-traditional items exported.

Engineering goods and petroleum products are the two major components of India’s total exports. Exports of engineering goods have climbed to USD 101 billion in FY22, a 49.8% increase. Also, petroleum exports have skyrocketed from USD 22.2 billion in FY21 to USD 55.5 billion in FY22.

 Conclusion

To summarise, major changes in the scale, composition and course of the Indian foreign trade have been noted over the last five decades. India’s transformation from a largely primary commodities exporting country to a non-primary commodities exporting country is remarkable. The nation’s reliance on importing capital goods and food grains has also decreased. The majority of these modifications have been in line with the economy’s development needs. The trend implies that the Indian economy is undergoing structural changes.

 

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