Internal and External Trade – Geography – UGC NET – Notes

Introduction

• Foreign trade is concerned with trade between different countries of the world. Export refers to selling goods and services to other countries, while import means buying goods and services from other countries. It is also known as international trade, external trade or inter – regional trade. No country in the world is endowed with adequate resources and facilities to produce all the goods and services that it needs. This being the major rationale to have international trade among countries for the exchange of goods and services they need. India buys from and sells the goods and services to countries across the world. 
• Foreign trade helps domestic industries to expand their business in domestic economy as well as exports to other country (Botre, 2018). Export of goods and services to other countries gives more foreign exchange and every country concentrates on the export of its goods than the import. It involves different currencies of different countries and is regulated by laws, rules and regulations of the concerned countries making international trade more complex.
• India’s foreign trade have played crucial role in the economic development of the country. Increasing international trade is an aspect of the continuance of globalization. India’s trade and external sector has a significant impact on the GDP growth and expansion in per capita income.
• India’s foreign trade has witnessed structural changes in terms of volume, composition and direction over the period of 75 years after independence. Pertaining to export composition, capital intensive commodities have replaced labour intensive commodities. Share of developing countries in India’s total trade has witnessed a rise vis-à-vis decline in share of developed countries.
• Since 1991 India introduced economic reform and foreign trade constituted an important component of such measures. However, India’s trade regime and regulatory environment still remains relatively restrictive. The Department of Commerce of the Ministry of Commerce and Industry at the level of Central Government has responsibility to manage foreign trade operations.
• It is important note that the low world share of India’s exports, does not reflect the importance of foreign trade for the Indian economy. All-out efforts are being made by the government to raise the share of India in the global exports. 

Importance of Foreign Trade in India

• Trade is the lifeline of any nation which helps in economic growth and nation’s development. Foreign trade has been considered as an engine of growth. It has got an important place in the economic development of India.
• Indian economy and foreign trade are closely interlinked and have a significant impact on growth and trend of GDP and in per capita income. It is a crucial part of development strategy and is an effective mechanism of financial growth, job opportunities and poverty reduction in the economy.

Importance of foreign trade can be stated in the following way:

1. Optimum use of resources of the country;
2. Economies of large scale production; 
3. Making available necessary inputs for industrialization;
4. Dilution of monopoly power; 
5. Providing outlet for surplus production;
6. Earning much needed foreign exchange;
7. Promotion of economic development, creation of job opportunities and help reduce poverty in the country;
8. Generates revenue for the government;
9. Helping the country to deal with the periods of natural calamities (droughts, floods, etc.) through import of food grains, other necessary consumer goods, medicines etc.

Indian economy is growing rapidly and getting recognition worldwide. Shankar (2022) has very succinctly remarked that during the year 2022, international trade is being buffeted by:

1. a continuing global pandemic,
2. a European war, 
3. widespread economic sanctions,
4. battered supply chains, and
5. sudden national bans and caps on exports of essential commodities.

“Perhaps paradoxically, this may be the time to re-emphasises the critical importance of trade for sustained prosperity”.

It is well to remember that trade is not an end in itself, but a means to economic growth and national development. Globalization is playing an important role in export-led growth, leading to increase in employment in the country. In India, the government initiated some changes in its strategy on trade, foreign investment, and tariffs. An appropriate and skillfully designed foreign trade policy is essential for India’s rapid economic growth.