For UPSC aspirants, thorough preparation is crucial, especially when it comes to understanding the nuances of the Indian Economy, particularly the intricate domain of Foreign Trade and Agreements. The NCERT notes on the Indian Economy provide a comprehensive overview, offering invaluable insights into the dynamics of international trade, economic agreements, and their impact on India’s economic landscape. These notes serve as an indispensable resource, elucidating key concepts, policies, and developments shaping India’s engagement with the global economy. Delving into topics such as trade policies, balance of payments, WTO agreements, and regional economic groupings, they equip aspirants with a solid foundation to navigate the complexities of foreign trade and agreements, essential for success in the UPSC examination.
Introduction to Foreign Trade
- Foreign trade plays a pivotal role in the economic landscape of every country. It enables a nation to optimize its natural resources, export surplus production, and acquire technical expertise. Industrialization becomes achievable through the importation of essential capital, machinery, and raw materials from more advanced and industrialized nations.
- Effective control of foreign trade can positively influence employment, output, prices, industrialization, and overall economic development.
- According to the Economic Survey 2022-23, India’s top five export destinations include the USA, UAE, China, Bangladesh, and Hong Kong. In terms of imports, the top five destinations are China, the United States of America, the UAE, Switzerland, and Saudi Arabia. India has maintained a positive trade balance with the US, ranking among its top trading partners.
India’s Foreign Trade Position
- India’s engagement in foreign trade witnessed a continuous decline until 1980. However, since 2001, there has been a consistent improvement:
- As per the WTO ranking in 2021, India’s share of merchandise imports and exports among developing countries to the rest of the world slipped to the fourth and eighth positions in 2020.
- In 2019, India accounted for approximately 1.71% of the total global merchandise exports.
- According to the Be Survey 2022-23, India’s major trading partners causing a negative bilateral trade balance are China, Switzerland, Iraq, Saudi Arabia, and the UAE.
- Conversely, the top five countries contributing to India’s surplus trade balance are the USA, Bangladesh, Nepal, Turkey, and the Netherlands. India faced its largest trade deficit with China at -43.4, while its exports reached 422.0 billion in the fiscal year 2022.
India Foreign Trade Status
- As of 2021, India ranked 14th in total exports and 11th in total imports, according to the Economic Complexity Index.
- Despite its foreign reserves surpassing US$ 600 billion in 2023, the improvement in the Balance of Payments was confined to the current account deficit.
- The RBI reported a current account deficit of 2.7% of GDP from April-December 2022, compared to 1.1% in the same period the previous year.
Direction of India’s Foreign Trade
- India’s foreign trade direction has shifted over the years, with America emerging as the largest trading partner. Regionally, Asia-Oceania countries dominate India’s foreign trade, and the European Union stands as the largest trading partner group, followed by ASEAN.
- The major importers for India include China (15.5%), UAE (7.3%), USA (7.2%), Saudi Arabia (5.0%), and Iraq (4.994%). On the export side, the top countries are the USA (18.4%), UAE (6.6%), China (5.9%), Bangladesh (3.5%), and Hong Kong (2.85%).
India’s Trading
- The Economic Survey 2022-23 indicates that China, Switzerland, Saudi Arabia, Iraq, and South Korea are the top five countries with which India has a negative bilateral trade balance. On the other hand, the US, Bangladesh, Nepal, and the UK are the top five countries contributing to India’s trade balance surplus.
Structure of Indian Foreign Trades
The following is a systematic discussion of India’s import-export
Indian Exports
- Despite challenges in tourism, India’s net income from services grew significantly in April-December 2021, driven by robust software and business income. In the fiscal year 2021-22, India’s overall exports (Merchandise and Services) are estimated at USD 676.5 billion, with merchandise contributing USD 422 billion and service exports USD 254.5 billion. Overall imports for the same period are estimated to be USD 495.83 billion.
- The structure of Indian foreign trade involves a systematic discussion of both imports and exports. Exportation involves providing goods or services from domestic producers to foreign consumers. While traditional exports required customs involvement, the rise of small trades through platforms like Amazon and eBay has reduced such bureaucratic hurdles, although legal restrictions still apply.
Top Export Destinations (2021-22 in % Share)
| Country | % Share |
| United Arab Emirates | 18.4 |
| China | 5.9 |
| Bangladesh | 3.5 |
| Hong Kong | 2.8 |
| Singapore | 2.8 |
| UK | 2.6 |
| Netherlands | 2.6 |
| Belgium | 2.4 |
| Germany | 2.3 |
Indian Imports
- Imports refer to any goods or services legally brought into one country from another, typically for trade purposes. Imported goods or services are provided to domestic consumers by foreign producers.
- In the receiving country, an import is considered an export to the sending country. The import process usually involves customs authorities in both the importing and exporting countries and is often subject to import quotas, tariffs, and trade agreements.
- In India, import data is reported by the Directorate General of Commerce. Among the significant imports, the value of Petroleum, Oil, and Lubricants (POL) saw growth in the financial year 2019-20.
- For the period FY 2022-23 (April-March), India’s merchandise imports totaled US $714.24 billion, compared to $613.05 billion during FY 2021-22 (April-March).
- A report from the UK’s Department of International Trade, released in September 2021, projects that India is poised to become the world’s third-largest importer by 2050.
Top Import Destinations (2021-22 in % Share)
| Country | Percentage Share |
| China | 15.5% |
| United Arab Emirates | 7.3% |
| United States | 7.2% |
| Saudi Arabia | 5.0% |
| Iraq | 4.9% |
| Switzerland | 4.7% |
| Hong Kong | 3.2% |
| South Korea | 2.9% |
| Indonesia | 2.9% |
| Singapore | 2.9% |
Trade Composition
The composition of trade is outlined below:
Export Composition
- The commodity composition of India’s trade has undergone significant changes since liberalization, influenced by trade policy, movements in national prices, and the evolving pattern of domestic demand.
- India’s overall exports (merchandise and services combined) for April-February 2021-22 are estimated at US $601.77 billion, showing a positive growth of 36.19% over the same period last year and a positive growth of 23.44% from April-February 2019-20.
- According to the International Monetary Fund’s World Economic Outlook Database, India’s Total Gross Domestic Product amounted to US $8.221 trillion as of October 2016. Therefore, exports accounted for approximately 3% of the total Indian economic output.
- The top 10 export product categories for the financial year 2021-22, according to the Department of Commerce, Government of India, are as follows:
- Petroleum products: 14.3%
- Pearl, precious, semi-precious stones: 6.8%
- Drug formulations, biologicals: 4.7%
- Gold and other precious metal jewelry: 2.8%
- Iron and steel: 6.0%
- Organic chemicals: 2.8%
- Electric machines and equipment: 2.4%
- Aluminium products: 2.3%
- Products of iron-steel: 2.0%
- Marine products: 2.0%
Import Composition
- Overall imports for April-February 2021-22 are estimated to be US $683.01 billion, reflecting a positive growth of 51.51% over the same period. The value of non-petroleum imports was US $44.07 billion in August 2022, showing a positive growth of 23.63% over non-petroleum imports of US $35.65 billion in August 2021.
- India’s top 10 imports accounted for almost three-quarters (74.3%) of the overall value of its product purchases from other countries. The highest dollar-value product groups in India’s import purchases during 2021-22 are as follows:
- Petroleum crude: 19.2%
- Gold: 8.8%
- Petroleum products: 6.3%
- Coal, coke, and briquettes, etc.: 4.9%
- Pearl, precious, semi-precious stones: 5.0%
- Electronics components 3.8%
- Vegetable oil 3.2%
- Organic chemicals 2.9%
- Computer hardware 2.6%
- Plastic raw materials 2.5%
Overall Trade Balance
- India experienced a current account deficit in H1 (first half of the financial year) FY 22 due to a widening trade deficit, driven by a broad-based revival of aggregate demand. Despite the Current Account Deficit (CAD), robust capital flows resulted in an overall Balance of Payments (BoP) surplus of US$ 63.1 billion in H1:FY 22.
- The trade deficit for FY 2022-23 (April-March) was estimated at $ 266.78 billion compared to $191.05 billion during FY 2021-22, leading to augmented foreign exchange reserves of US$ 596 billion as of June 2023. India consistently ran a trade surplus with its top trading countries, the USA and the United Arab Emirates, since 2014-15.
- However, trade deficits persisted with other major trading partners such as China PRP, Saudi Arabia, Iraq, Germany, Korea RP, Indonesia, and Switzerland from 2014-15. India had a trade surplus with Hong Kong and Singapore until 2017-18, shifting to a trade deficit in 2018-19. Bilateral imbalances have generally remained stable.
Import Cover
- Import cover, measured in months of retained imports of goods at the year-end, indicates the number of months of money available in the national bank to cover the cost of imports.
- During the currency crisis of 2013, with foreign exchange reserves of around US$275 billion, import cover dropped to approximately seven months. Currency experts suggest that eight to ten months of import cover is essential for currency stability.
Export Promotion
- India’s Foreign Trade Policy emphasizes promoting exportable goods and reducing reliance on imports to meet domestic demand for foreign goods. Export promotion policies aim to encourage exports, enhance forex reserves, and address the BoP deficit. With imports liberalized in line with globalization, the government employs various incentives, subsidies, and concessions to boost exports.
Measures for Export Promotion
- Several committees, including the Gorewala Committee 1950, De Souza Committee 1957, Import and Export Policy Committee 1962, Alexander Committee 1979, Tondon Committee 1980, Abid Hussain Committee 1984, and Rangarajan Committee 1991, have made recommendations to promote exports.
- These recommendations have led to the initiation of various steps for export promotion.
Major Initiatives for Export Boost
- India’s export performance owes its success to various schemes and initiatives that aim to mitigate the impact of COVID-19. Some noteworthy schemes include:
Remission of Duties and Taxes on Products (RoDTEP):
- Implemented from January 1, 2021, this WTO-compliant scheme improves upon the Merchandise Exports from India Scheme (MEIS).
- RoDTEP reimburses central, state, and local taxes and duties incurred during the manufacturing and distribution of exported products, fostering a level playing field for domestic industries abroad.
Developing Districts as Export Hubs:
- Aims to make districts active stakeholders in promoting the exports of goods/services produced locally.
- District Export Promotion Committees (DEPCs) have been established in each district, identifying products with export potential across the country.
Production-Linked Incentive (PLI) Scheme:
- Provides incentives based on incremental sales for products manufactured domestically, targeting a minimum production of over $500 billion in five years.
- Sectors covered include automobiles, auto components, pharmaceutical drugs, telecom, networking products, and electronic/technology products.
Electronic Platform for Preferential Certificate of Origin (COO):
- Facilitates electronic issuance of Free Trade Agreement (FTA)/Preferential Trade Agreement (PTA) certificates, avoiding physical movement due to the COVID-19 crisis.
- Non-preferential COO issuance started on April 5, 2021.
Infusion of Capital in EXIM Bank:
- The government infused ₹750 crore in the Export-Import Bank of India (EXIM Bank) during the fiscal year 2021-22 through subscription to its share capital.
- Government-approved capital infusion of ₹4,400 crore to Export Credit Guarantee Corporation of India Ltd. (ECGC) over five years.
- Export Promotion Capital Goods (EPCG): An ongoing scheme under the foreign trade policy.
- The government reduced specific export obligations from 90% to 75% of the normal export obligation to encourage procurement of capital goods from indigenous manufacturers.
Other Export Promotion Schemes:
- Trade Infrastructure for Export Scheme (TIES), Market Access Initiatives (MAI), Special Economic Zone (SEZ) Scheme, Emergency Credit Line Guarantee Scheme (ECLGS), and Advance Authorisation Scheme continue to support trade infrastructure and marketing efforts.
Pradhan Mantri Gati Shakti National Master Plan (NMP)
- The Pradhan Mantri Gati Shakti National Master Plan (NMP), approved in October 2021, is designed to establish multimodal connectivity to various economic zones. The primary objective is to integrate infrastructure linkages comprehensively, facilitating the seamless movement of people, goods, and services to enhance logistics efficiency.
- Under the Gati Shakti initiative, 16 ministries collaborate for integrated planning and coordinated implementation of infrastructure connectivity projects, including Bharatmala, Sagarmala, inland waterways, and UDAAN, among others. The plan incorporates advanced technology, utilizing spatial planning tools with ISRO imagery developed by BISAG-N (Bhaskaracharya National Institute for Space Applications and Geo-informatics).
- Economic zones, such as textile clusters, pharmaceutical clusters, and electronic parks, are targeted to enhance global competitiveness for Indian businesses by reducing logistics costs and establishing robust linkages for local industries and consumers. This initiative aims to stimulate economic growth, attract foreign investment, and create numerous employment opportunities.
Other Initiatives to Improve Logistics Ecosystem
- The government has implemented various measures in recent years to enhance logistics efficiency through infrastructure development and process reforms. Notable initiatives include the introduction of FASTag, Turant Customs, mandatory RFID (Radio Frequency Identification) tagging for all EXIM bound containers, E-San chit, Indian Customs Enquiry for Trade Assistance and Knowledge (ICETRAK), ICEDASH (Indian Customs EDI Dashboard), Secured Logistics Document Exchange (SLDE), Import Clearance System, GHG Calculator, and more.
- To ease maritime trade, efforts are underway for the development of port-specific master plans and coordination mechanisms. This includes the upgradation of Land Customs Stations (LCS) to Integrated Check Posts (ICPs) and the promotion of Free Trade Warehousing Zones.
- The Interest Equalisation Scheme has been devised to provide benefits in the interest rates charged by banks to exporters on their pre and post-shipment rupee export credits. Subvention rates have been revised, with reduced rates of 3% subvention for MSME manufacturing exporters and 2% for merchant and other manufacturers exporters.
Export Processing Zone (EPZ)
- A Free Trade Zone (FTZ) or Export Processing Zone (EPZ) allows goods to be landed, handled, manufactured, or re-exported without customs intervention. When goods move to consumers within the zone’s country, they become subject to prevailing customs duties. These zones are typically situated around major seaports, international airports, and national frontiers, offering geographical advantages for trade.
- Free Trade Zones are characterized as labor-intensive manufacturing centers involving the import of raw materials or components and the export of factory products. Asia’s first Export Promotion Zone was established in Kandla in 1965, with a total of seven EPZs set up in the public sector, including locations like Kandla (Gujarat), Santacruz (Maharashtra), Falta (West Bengal), Noida (Uttar Pradesh), Kochi (Kerala), Chennai (Tamil Nadu), and Visakhapatnam (Andhra Pradesh). Additionally, EPZs were established in the private sector, focusing on specific industries such as electronics and gems jewelry.
Special Economic Zone (SEZ)
- The inception of Asia’s first Export Processing Zone (EPZ) in Kandla, India, in 1965 marked the beginning of a transformative journey.
- The SEZ Policy, announced in April 2000, aimed to position SEZs as engines of growth, supported by robust infrastructure and an enticing fiscal package.
- To ensure stability and coherence in the SEZ regime, the SEZ Act of 2005 came into effect on February 10, 2006. The act, aligning with the provisions of the SEZ Act, of 2005, permits 100% Foreign Direct Investment (FDI) in SEZs through the automatic route.
- The act offers an attractive fiscal incentive package, including exemption from customs duties, central excise duties, service tax, central sales taxes, and securities transaction tax for both developers and units.
- Incentives under the act include tax holidays for 15 years, comprising 100% tax exemption for the initial five years, 50% for the subsequent five years, and 50% for the ploughed-back export profits in the final five years. SEZ developers enjoy 100% income tax exemption for ten years within a block period of 15 years.
- Infrastructure provisions aim to establish free trade and warehousing zones to create world-class trade-related infrastructure, making India a global trading hub. This includes the setup of offshore banking units and units in International Financial Service Centres within SEZs. Public-private participation in infrastructure development is encouraged, with the establishment of a SEZ authority in each Central Government SEZ for developing new infrastructure and fortifying existing ones.
Agri Export Zones (AEZs)
- In March 2001, the Government of India unveiled the Agri Export Zones (AEZs) policy to enhance agricultural exports from the country. Sanctioning 60 AEZs, covering approximately 40 agricultural commodities across 20 states, the policy aims to consolidate efforts by various Central and State Government departments to boost agricultural commodity exports.
Foreign Trade Policy (FTP)
- The Union Commerce Ministry of the Government of India announces an integrated Foreign Trade Policy, also known as EXIM Policy, every five years.
Foreign Trade Policy Formulation in India
- Formulated and implemented primarily by the Ministry of Commerce and Industry, in collaboration with other relevant ministries and agencies, such as the Ministry of Finance, Ministry of Agriculture, and the Reserve Bank of India, the FTP serves as an instrumental tool to achieve India’s overall economic policy objectives of growth, industrial development, and self-sufficiency.
- While FTP is a means to attain long-term goals, it is also strategically utilized to address short-term objectives like containing inflation. The Department of Commerce at the Ministry of Commerce and Industry is entrusted with the mandate to formulate India’s International Trade and Commercial Policy and execute it effectively.
Foreign Trade Policy 2023-28
- Effective from April 1, 2023, the Foreign Trade Policy (FTP) 2023-28 is a comprehensive document that seamlessly blends continuity with innovation to enhance export facilitation.
- The government envisions propelling India’s total exports to USD 2 trillion by 2030, ensuring equal contributions from both merchandise and services sectors.
- Encouraging the use of the Indian currency in cross-border trade is also a key focus, backed by a new payment settlement framework introduced by the RBI in July 2022.
Key Approach of FTP 2023-28: Four Pillars
- The policy’s foundation rests on four key pillars:
- Incentive to Remission: Focused on export promotion through collaboration with exporters, states, districts, Indian missions, ease of doing business, reduction in transaction costs, e-initiatives, and emerging areas like E-Commerce.
- Developing Districts as Export Hubs: Aims at streamlining the Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET) policy, fostering growth at the grassroots level.
Salient Features of FTP 2023-28
Important features of FTP 2023-28 are as follows
Process of Re-Engineering and Automation:
- Shifts focus from an incentive-based regime to one that is technology-driven and collaborative.
- Reduction in fee structures and IT-based schemes to enhance accessibility for MSMEs and other entities.
- Duty exemption schemes to be implemented through Regional Offices, ensuring a rule-based IT system for efficiency.
Towns of Export Excellence (TEE):
- Faridabad, Mirzapur, Firozabad, and Varanasi were designated as new TEEs, joining the existing 39 towns.
- TEEs are granted priority access to export promotion funds under the MAI scheme and benefits under the Export Promotion Capital Goods (EPCG) scheme.
Recognition of Exporters:
- Exporter firms recognized with status based on export performance to be partners in capacity-building initiatives.
- Encouragement for 2-star and above status holders to provide trade-related training based on a model curriculum.
Promoting Export from the Districts:
- Partnerships with State Governments to drive the Districts as Export Hubs (DEH) initiative.
- Institutional mechanisms like the State Export Promotion Committee and District Export Promotion Committee address concerns at the district level.
- Preparation of district-specific export action plans outlining strategies to promote identified products and services.
Strengthening SCOMET Policy
- As India aligns itself more closely with countries in the export control regime, there’s a concerted effort to streamline and fortify the SCOMET policy.
- The outreach and understanding of SCOMET among stakeholders have expanded, and the regulatory framework is being enhanced to effectively implement international treaties and agreements entered into by India.
- A robust export control system in India aims to provide Indian exporters access to dual-use high-end goods and technologies while facilitating the export of controlled items and technologies under SCOMET.
Boosting E-Commerce Exports
- Estimates project the e-commerce export potential to reach USD 200 to USD 300 billion by 2030.
- The FTP 2023 outlines a strategic roadmap for establishing e-commerce hubs, addressing elements like payment reconciliation, bookkeeping, returns policy, and export entitlements.
- In a significant move, the consignment-wise cap on e-commerce exports through couriers has been increased from 5 lahks to 10 lahks in the FTP 2023, with further revisions or removal based on exporter feedback.
Enhancements Under (EPCG) Scheme
- The EPCG Scheme, facilitating the duty-free import of capital goods for export production, undergoes further rationalization.
- Key changes include the inclusion of the Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme under the Common Service Provider (CSP) Scheme of EPCG. Additionally, the dairy sector is exempted from maintaining Average Export Obligation to support technological upgrades.
Advancements in the Advance Authorisation Scheme
- The Advance Authorisation Scheme, catering to Domestic Tariff Area (DTA) units, enables duty-free import of raw materials for manufacturing export items.
- This scheme is now aligned with the EOU and SEZ schemes.
- A Special Advance Authorisation Scheme is extended to the apparel and clothing sector on a self-declaration basis to facilitate the swift execution of export orders.
- The Self-Ratification Scheme for fixing Input-Output Norms is now extended to 2-star and above status holders.
Amnesty Scheme for Exporters
- An online portal will be launched under the amnesty scheme, providing a six-month window for exporters to register and avail themselves of the scheme.
- This initiative aims to regularize pending cases of default in export obligations by paying customs duties proportionate to unfulfilled export obligations.
Service Exports from India Scheme (SEIS)
- Replacing SFIS, the SEIS benefits all service providers in India earning foreign exchange, irrespective of their constitution or profile.
- Those exporting notified services are eligible for benefits at the rate of 3% or 5% of net foreign exchange earnings.
- Duty Credit Scrip issued under SEIS is freely transferable and usable for all types of goods/services, and incentives are now extended to units in SEZs.
Preferential Trade Agreement (PTA)
- A Preferential Trade Agreement (PTA) is a trade arrangement that grants special access to certain products among participating countries.
- This is achieved by reducing tariffs without completely abolishing them, representing the initial step toward economic integration.
- PTAs may encompass provisions on customs cooperation, trade facilitation, harmonization of standards, and regulatory cooperation across various domains.
- In a PTA, there exists a positive list of products subject to reduced duties, exemplified by the India-MERCOSUR PTA.
Free Trade Agreement (FTA)
- A Free Trade Agreement (FTA) is a pact between two or more nations aimed at diminishing barriers to imports and exports. Under an FTA, goods and services can flow across international borders with minimal government tariffs, quotas, subsidies, or prohibitions hindering their exchange.
- FTAs cover trade in goods, spanning agricultural or industrial products, and trade in services such as banking, construction, and trading. Unlike PTAs, FTAs utilize a negative list where duties are not reduced or eliminated, as seen in the India-Sri Lanka Free Trade Agreement.
Trading Blocks
- Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreement (CEPA) are agreements comprising an integrated package covering goods, services, investment, and other areas like intellectual property rights and competition.
- While CECA involves phased tariff reduction on listed items, CEPA extends to trade in services, investment, and broader economic partnership. CEPA holds a wider scope compared to CECA.
Regional Comprehensive Economic Partnership (RCEP)
- The RCEP, conceived in 2011, is a free trade agreement encompassing Asia-Pacific nations.
- It includes Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.
- RCEP covers goods, services, investments, intellectual property rights, economic and technical cooperation, and dispute settlement. India opted not to sign the RCEP agreement in November 2019, citing domestic challenges.
Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)
- Established in 1997, BIMSTEC is a regional organization connecting South and Southeast Asia, bridging the ecologies of the Great Himalayas and the Bay of Bengal.
- It aims to foster an environment for rapid economic development, accelerate social progress, and encourage collaboration on shared interests.
- BIMSTEC emphasizes equality, partnership, and active collaboration, striving for mutual assistance among member countries in various areas of common interest.
South Asian Free Trade Agreement (SAFTA)
- The South Asian Free Trade Area (SAFTA) is the Free Trade Arrangement established by the South Asian Association for Regional Cooperation (SAARC).
- Enacted in 2006, it succeeded the AFTA SAARC Preferential Trading Arrangement. Signatory countries to SAFTA include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
- SAFTA aims to foster and enhance mutual agreements among member countries, promoting medium and long-term contracts, trade operations by states, and ensuring supply and import assurance for specific products.
- The agreement encompasses concessions on tariffs, both national duties and non-tariff items, contributing to the Balance of Trade.
Balance of Trade
- The Balance of Trade (BoT), also known as the trade balance, represents the disparity between the monetary value of a country’s imports and exports of goods during a specific timeframe. As part of the larger economic picture, the Balance of Payments, it considers capital movements, loan repayments, tourist expenditures, freight and insurance charges, and other payments.
In equilibrium, three scenarios may unfold:
- Balanced BoT: Exports equal Imports.
- Unbalanced BoT: Exports are less than Imports.
- Favorable BoT: Exports exceed Imports.
| Basis | Balance of Trade | Balance of Payments |
| Description | A statement that captures the country’s export and import of goods with the remaining world. | A statement that covers all economic transactions done by the country with the remaining world. |
| Area | Its area is narrow and also it is a part of Bop. | Its area is comprehensive. |
| Nature | It can be unfavorable and favorable. | It is always in balance. |
| Items | The entire BoT is related to visible items. | The entire BoT is related to visible and invisible (services) items. |
| Rate | The effect of Exchange cannot be affected. | Can be affected. |
| Importance | It provides a partial picture. | It provides a whole picture. |
Prelims Facts
- Which country holds the title of being the largest trade partner of India? USA (UKPSC (Pre) 2016)
- The Exim Bank of India (EXIM Bank) was established by the Government of India in the year 1982 (UKPSC (Pre) 2010)
- In which location was the private sector’s first Export Processing Zone established? Surat (UPPSC (Mains) 2005)
- In terms of the economy, the visit by foreign nations to witness the XIX Commonwealth Games in India amounted to Exports (IAS (Pre) 2011)
- Which Ministry of the Government of India is related to India’s Foreign Trade policy? Commerce and Industry (MPPSC (Pre) 2020)
- The problem of international liquidity is related to the non-availability of Dollars and other hard currencies [IAS (Pre) 2015]
- Which is the most important item exported from India? Clothes (UPPSC (Pre) 2018]
- Among Wheat, Rice, Sugar, and Pulses, which item cannot be exported? Pulses (UPPSC (Pre) 2013]
- What is the main aim of the ASIDE scheme started by the Indian Government? To encourage export [IAS (Pre) 2010]
- Between which years was the trade balance favorable to India? 1972-73 and 1976-77 [BPSC (Pre) 2015]
- All import and export transactions of a country during a given period, normally a year, are systematically recorded in Balance of Payment [IAS (Pre) 2018]
- India and Malaysia Free Trade Agreement was signed in which year? 2011 (UPPSC (Pre) 2011]
- Tirupur industrial area in the state of Tamil Nadu is famous for which export item? Cotton textiles (IAS (Pre) 2020)
- The agreement between India and the USA is designed to enhance transparency between nations on tax matters. The agreement takes effect from 30th September 2015 (UPPSC (Pre) 2016)
- The Super 301 law is related to Free trade barriers [UPPSC (Pre) 1991]
- The India Brand Equity Fund (IBEF) was established in 1996 [UPPSC (Pre) 1997]
- Duty-Drawback is related to Refund in payments (UPPSC (Pre) 2011]
- Freely permitting the conversion of the rupee to other currencies and vice-versa is known as the Convertibility of the rupee [IAS (Pre) 2015]
- The Special Economic Zone Act was passed by the Parliament in the year 2006 [UPPSC (Pre) 2010]
- The term West Texas Intermediate found in the news refers to a grade of Crude oil (IAS (Pre) 2020)
- The development of the concept of the Global village is based on Transport and Communication development [UPPSC (Pre) 2012]
- What is the full form of EPCG? Export Promotion Capital Goods [BPSC (Pre) 2015]
- The Export Credit Guarantee Corporation of India (ECGC) is related to Providing credit risk insurance [UPPSC (Pre) 2012]
- The term Digital Single Market Strategy seen in the news refers to the EU [IAS (Pre) 2017]
- The Government of India in the Union Budget 2020-2019 announced a new scheme named NIRVIK. Which area of the economy does NIRVIK affect? Export [BPSC (Pre) 2020]
UPSC NCERT Practice Questions
1. Name of the countries in which India has a negative bilateral trade balance.
1. China
2. Switzerland
3. Qatar
Codes
(a) Only 2
(b) 1 and 2
(c) Only 3
(d) 1, 2 and 3
2. Consider the following statements about India’s New Foreign Trade Policy (FTP), UPPSC (Pr) 2018
1. It is announced by the Ministry of External Affairs.
2. It was earlier known as Export-Import Policy
3. As part of FTP, India has signed a Comprehensive Economic Partnership Agreement (CEPA) with South Korea.
Which of the statement(s) given above is/are correct?
(a) 1 and 2
(b) 2 and 3
(c) 1 and 3
(d) All of these
3. Measures to reduce imports will
(a) boost injections into an economy.
(b) reduce withdrawals from an economy,
(c) decrease injections into an economy
(d) increase withdrawals from an economy
4. Which one of the following items has gained the highest growth rate in the import composition of the Indian economy in the last decade?
(a) Project good
(b) Iron and steel
(c) Petroleum products
(d) Cotton accessories
5 Five different earlier schemes have been merged into a single scheme, namely
(a) Service Exports from India Scheme.
(b) Merchandise Exports from India Scheme.
(c)Pradhan Mantri Swasthya Suraksha Yojana.
(d)National Urban Health Mission.
6. International Trade is most likely to generate short-term unemployment in
(a) industries in which there are neither imports nor exports.
(b) import-competing industries.
(c) Industries that sell to domestic and foreign buyers.
(d) Industries that sell to only foreign buyers.
7. Free traders maintain that an open economy is advantageous in that it provides all the following except
(a) increased competition for world producers.
(b) a wider selection of products for consumers
(c) relatively high wage levels for all domestic workers
(d) the utilization of the most efficient production methods.
8. Terms of trade between two countries refer to a ratio of ……..
(a) export prices to import prices.
(b) currency values.
(c) export to import.
(d) Balance of Trade to Balance of Payments.
9. Consider the following.
1. Edible oil
2. Semi-precious stone
3. Medicinal and pharma-products
4. Fertilisers
5. Petroleum crude and product
Which of the items given above are the components of the bulk import in the Indian economy?
(a) 1, 3, 4, 5
(b) 1, 2, 4, 5
(c) 2, 3, 4, 5
(d) All of the above
10 . Which one of the following percentages is the share of the Indian export in the International Trade?
(a) Less than 1%
(b) More than 1 but less than 4%
(c) More than 4 but less than 5%
(d) More than 5 but less than 7%
11. Special Economic Zone (SEZ) Act became effective in UPPSC Prej 2010
(a) 2004
(b) 2005
(c) 2006
(d) 2007
12. In India, the Special Economic Zone (SEZ) policy was announced in UPPSC (Main) 2014, 17
(a) April, 2000
(b) April, 2001
(c) April, 2002
(d) April, 2003
13. A Free Trade Zone (FTZ) is one where
(a) trade is done without restriction.
(b) any entrepreneur is free to start industries.
(c) infrastructural facilities are provided free to entrepreneurs by the Government.
(d) industries are free from excise duties and produce.
14. Free Trade Policy (FTP) refers to a policy where there is UPPCS (Mains) 2005
(a) absence of tariff.
(b) restriction on the movement of goods.
(c) existence of an anti-dumping policy.
(d) encouragement for balanced growth.
15. The problem of international cash is related to the non-availability of which of the following?
(a) Goods arid services
(b) Gold and silver
(c) Dollar and other hard currencies
(d) Exportable (surplus)
16. Consider the following statements about the recent Foreign Trade Policy (FTP).
1. The Policy relates to the period 2005 to 2010
2. Its major objective is to double India’s share of global merchandise trade by the end of the policy.
3. It emphasize on economic development and not on employment generation.
Which of the statement(s) given above is/are correct?
(a) 1 and 3
(b) Only 2
(c) 1 and 2
(d) All of the above
Know Right Answer
1. (d)
2. (b)
3. (b)
4. (c)
5. (b)
6. (b)
7. (c)
8. (a)
9. (b)
10. (b)
11. (c)
12. (a)
13. (d)
14. (a)
15. (c)
16. (b)
Frequently Asked Questions (FAQs)
FAQ: What is the purpose of international trade agreements?
Answer: International trade agreements are established to facilitate the exchange of goods and services between countries while minimizing trade barriers. The primary purposes include promoting economic growth, fostering cooperation among nations, and creating a predictable and stable trading environment. These agreements aim to reduce tariffs, quotas, and other barriers to trade, thereby encouraging the flow of goods and services across borders. By providing a framework for fair and transparent trade practices, these agreements contribute to global economic stability and increased prosperity.
FAQ: How do trade agreements benefit participating countries?
Answer: Trade agreements offer several benefits to participating countries. First, they promote economic efficiency by allowing nations to specialize in the production of goods and services in which they have a comparative advantage. This specialization leads to increased productivity and overall economic growth. Second, trade agreements create a larger market for goods and services, fostering increased competition and innovation. Additionally, these agreements often result in lower prices for consumers due to enhanced efficiency and a broader range of available products. Lastly, trade agreements can strengthen diplomatic ties between nations, fostering a sense of cooperation and mutual benefit.
FAQ: Can international trade agreements lead to job displacement?
Answer: While international trade agreements can contribute to economic growth, they may also lead to job displacement in certain industries. When countries specialize in producing goods and services in which they have a comparative advantage, less competitive industries may experience a decline. This can result in job losses and economic challenges for workers in those sectors. However, proponents argue that the overall benefits, such as lower prices, increased consumer choices, and job creation in expanding industries, often outweigh the short-term challenges. Many countries implement policies and programs to assist displaced workers through retraining and support to help them transition to new employment opportunities.
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