What is import export process in India

South-South relations shape India's foreign trade

The past three decades have fundamentally changed India's foreign trade. While India's trade with other emerging and developing countries has risen sharply, the country imports more than it exports. That makes his economy vulnerable.

From independence in 1947 until the early 1990s, India's economy was sealed off from foreign trade in line with socialist policies. In the 1980s, India began to liberalize its economy. The process accelerated in the early 1990s. Due to a balance of payments crisis, the Indian government had to borrow money from the International Monetary Fund (IMF) and the World Bank. Structural adjustment was the condition. For the Finance Minister at the time, Manmohan Singh, this offered the opportunity to consolidate his liberal economic reforms (see interview with Salman Anees Soz in the focus on D + C / D + C e-Paper 2018/08).

In the meantime, the former planned economy has largely developed into a liberal market economy. This is especially true for foreign trade. India co-founded the World Trade Organization (WTO) in 1995 and had previously also signed the General Agreement on Tariffs and Trade (GATT) from which it emerged. India is clearly in favor of a multilateral trade order.

Indian foreign trade has also changed significantly since the 1990s. From fiscal year 1990/91 to 2017/18, the total value of Indian goods exports increased 16-fold: from 18 billion US dollars to 300 billion US dollars. During the same period, imports increased 20-fold: from $ 24 billion to more than $ 460 billion.

India today exports fewer goods from traditional industries such as textiles and agriculture. On the other hand, the total share of technical products in exports has increased from 12 percent to 28 percent. In addition, thanks to extensive pharmaceutical exports, India has become the pharmacy of the world (see Deepak Sapra in the focus D + Z / D + C e-Paper 2016/02) and also serves as a global back office for companies in industrialized countries that are increasingly expanding their business processes and IT services outsource. All of this has a positive effect on the trade balance. Also not to be neglected are the remittances from Indian migrants from abroad. However, they do not appear in the statistics of the goods trade.

There has been little change in the nature of imports. India's largest import commodity is still oil. Depending on the price, it accounts for around 20 to 30 percent of annual import spending.

However, India is now trading with different countries than it used to be. In the past nine financial years, India imported about 30 percent of its goods and services from two groups of countries: the industrialized countries of the Organization for Economic Co-operation and Development (OECD) and the emerging countries of the Organization of Petroleum Exporting Countries (OPEC).

Thirty years ago India imported almost 60 percent of its goods and services from OECD countries and only 15 percent from OPEC countries. About eight percent of imports came from Eastern Europe and 18 percent from developing countries. Imports from Eastern Europe are only 2 percent today. One reason for this is certainly the collapse of the Soviet Union. In contrast, imports from developing countries rose to 37 percent. These include raw materials from the least developed countries as well as manufactured goods from China and other emerging markets.

There were similar upheavals in the export business. The OECD share fell from 57 percent to 36 percent, and exports to OPEC countries rose from six to 19 percent. While developing countries once bought 16 percent of Indian export goods, their share rose to 42 percent. Eastern European countries are also at the bottom here with a decline from almost 18 percent to just one percent. India's foreign trade has shifted significantly to South-South cooperation.

Strengths and weaknesses

International trade undoubtedly shapes India's economy. However, the past ten years have also shown that India's gross domestic product has grown faster than foreign trade. India's entire trade peaked in the 2012/13 financial year with a 46 percent share of the gross domestic product. However, this shrank again to 30 percent by 2017/18. This can be explained as follows: India's domestic economy remained strong while the global economy was weakened.

Neither the 2008 financial crisis hit India's economy hard, nor did the slowdown in economic growth in emerging markets in recent years.

The official statistics deserve a closer look. They make foreign trade seem more important than it is. But the majority of the Indian population are smallholders, many of whom are self-sufficient.

India's foreign trade has not yet been able to reduce the country's high poverty rate. Around 90 percent of Indians still earn their living as smallholders or in the informal sector. At the same time, India has produced high-tech and internationally successful branches of industry that secure the existence of millions and millions (see Aditi Roy Ghatak in the focus D + C / E + Z e-Paper 2018/10). However, China's rapid economic development dwarfs India here too (see info box).

Another weak point is India's persistent trade and current account deficit, which makes the economy vulnerable to external shocks. We live in troubled times in which it is becoming increasingly difficult to predict developments. So far India has adhered to WTO rules on trade agreements. But the influence of the WTO is diminishing. There are several explanations for this:

  • The WTO has hardly advanced the multilateral trade order with new agreements since 2001.
  • Their dispute settlement system has weakened over time as international trade disputes escalated.
  • The growing number of regional and bilateral agreements makes world trade even more confusing.

India's government is now also conducting bilateral trade talks and has signed contracts primarily with other Asian partners. India is less active in this area than in its efforts to reach multilateral agreements. It is difficult to assess what impact the current trade dispute between China and the US will have. India could benefit if Chinese manufacturers become less competitive internationally due to rising tariffs. But if a downturn in the global economy and disrupted value chains should be the consequence, it will more likely harm India.

Praveen Jha is Professor of Economics at Jawaharlal Nehru University in New Delhi.
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