Chapter 8 International Trade

Introduction

You are already familiar with the concept of trade as a tertiary activity involving the voluntary exchange of goods and services. In international trade, this exchange occurs between countries across national boundaries. International trade is considered mutually beneficial because no country is entirely self-sufficient; nations trade to obtain commodities they cannot produce or can acquire more affordably elsewhere.

Growth And Changes In India's International Trade

India's international trade has experienced substantial growth and transformation in recent years. The total value of external trade witnessed a sharp rise from $\textsf{₹}1,214$ crore in 1950-51 to $\textsf{₹}77,19,796$ crore in 2020-21. This remarkable increase is attributed to factors such as the growth momentum in manufacturing sectors, trade liberalization policies adopted by the government, and the diversification of trading markets.

Despite this growth, India's contribution to the total volume of world trade remains relatively modest, around one percent. However, this still represents a significant role in the global economy.

Over the years, the fundamental nature of India's foreign trade has changed, particularly concerning the balance between imports and exports.

While both the total volume of imports and exports has increased, the value of imports has consistently remained higher than that of exports, resulting in a trade deficit (unfavourable balance of trade). This gap between exports and imports has widened in recent years, as shown in Figure 8.1.

Changing Pattern Of The Composition Of India’S Exports

The mix of commodities that India exports has changed over time, reflecting shifts in domestic production capabilities and international demand. While traditional export items like agriculture and allied products have seen a decrease in their share, other categories have grown.

As seen in Table 8.2, between 2015-16 and 2021-22:

• The share of agriculture and allied products in total exports fluctuated but showed a slight decrease overall.
• Manufactured goods remain the largest category but their share has also seen a decrease.
• The share of crude and petroleum products has increased significantly in recent years.
• The share of ore and minerals has remained relatively stable.
• Other commodities have also shown some increase in their share.

The decline in the share of traditional items is largely due to intensified international competition. Within agricultural exports, while traditional items like cashew have declined, newer areas like floricultural products, fresh fruits, marine products, and sugar have seen increased exports.

The manufacturing sector continues to be a dominant contributor, accounting for 67.8% of export value in 2021-22. Engineering goods, in particular, have demonstrated substantial growth in exports. Gems and jewellery also contribute a significant share to India's foreign trade.

Table 8.3 provides the absolute value of exports for some principal commodities in 2021-22, with manufactured goods having the highest export value.

Changing Patterns Of The Composition Of India’S Import

India's import basket has also undergone significant changes over the decades, influenced by domestic needs, production capabilities, and global economic factors.

Historical Import Trends

In the 1950s and 1960s, India faced serious food shortages, making foodgrains a major item of import. Capital goods, machinery, and equipment were also imported to support industrialization efforts. Despite policies aimed at import substitution (reducing reliance on imports), the balance of payments remained adverse as imports consistently exceeded exports.

After the success of the Green Revolution from the 1970s, foodgrain imports were largely discontinued. However, the global energy crisis of 1973 caused a sharp rise in petroleum prices, leading to increased import expenditure on fuel. Fertilizers became a necessary import to support the new agricultural technology.

Current Import Basket

Today, India's major import items primarily include fuels (especially petroleum, oil, and lubricants), capital goods (machinery, equipment), fertilizers, edible oils, chemicals, pearls, precious and semi-precious stones, gold and silver, and non-ferrous metals. The composition reflects the country's energy needs, industrial requirements, and consumer demand for specific goods.

Table 8.4 illustrates the shifts in the percentage share of different commodity groups in India's total imports. The share of fuel (especially Petroleum, Oil, and Lubricants - POL) has shown an increasing trend, reflecting rising energy demand driven by industrialization and improved living standards, as well as fluctuations in international oil prices. The share of capital goods, after maintaining a relatively steady level, showed a decline in 2021-22. Imports of food and allied products have also seen a decline in their share.

Table 8.5 provides the absolute value of imports for some principal commodities in 2021-22. Petroleum, oil, and lubricants constitute the highest value imports, indicating significant reliance on these products.

Direction Of Trade

India maintains trade relationships with a vast number of countries and major trading blocs across the globe. Analyzing the direction of trade shows where India's exports are sent and from where its imports originate.

Table 8.6 indicates the value of India's import trade with different regions. Asia and the ASEAN countries collectively constitute the largest source of India's imports, showing significant growth in value between 2016-17 and 2021-22. Europe, North America, Africa, and Latin America are other important trading partners, with imports from all these regions also increasing during this period.

Most of India's foreign trade is facilitated by sea and air routes. A smaller portion of trade is conducted via land routes with neighboring countries like Nepal, Bhutan, Bangladesh, and Pakistan.

Trade Policy Goals

India has expressed the ambition to significantly increase its share in international trade within a specific timeframe. To achieve this, the government has adopted measures aimed at liberalizing trade, such as reducing import duties, simplifying licensing procedures, and transitioning towards product patents from process patents (which affects trade in pharmaceuticals and chemicals).

Sea Ports As Gateways Of International Trade

Ports and harbors serve as the primary gateways for international trade, facilitating the movement of cargo and people between a country and the rest of the world. India, with its long coastline and strategic location, relies heavily on its sea ports.

India has a long tradition of maritime activity and has developed numerous ports over centuries. An interesting geographical feature is that the west coast of India has a greater number of ports compared to the east coast. Ports provide essential facilities including docking, loading, unloading, and storage for cargo. Port authorities are responsible for maintaining navigable channels, managing vessel movements, and providing necessary labor and administrative services. The importance of a port is often gauged by the volume of cargo and the number of ships it handles. The quantity of cargo reflects the development level and economic activity of the port's hinterland (the inland area served by the port).

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Evolution Of Indian Ports

While ports existed in ancient India, their role as major gateways for international trade became prominent with the arrival of European traders and the subsequent British colonial rule. The British developed ports to serve as "suction points" to extract resources from the hinterlands and facilitate trade with Britain. Railway lines were extended inland to connect production areas with the ports, integrating local, regional, national, and international markets.

After India's independence in 1947, the partition of the country resulted in the loss of important ports like Karachi (to Pakistan) and Chittagong (to East Pakistan, now Bangladesh). To compensate, new ports were developed, such as Kandla on the west coast and Diamond Harbour (near Kolkata) on the Hugli river. Despite this setback, Indian ports continued to grow, handling increasing volumes of both domestic and international trade. Most ports have been equipped with modern infrastructure. Recognizing the need to upgrade ports to international standards, private sector participation has been encouraged for their development and modernization.

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Classification Of Ports

Ports are generally classified based on the type of cargo they handle or their location and specialised functions (as discussed in Chapter 7 of Fundamentals of Human Geography). Based on administration, India has 12 major ports managed by the central government and around 200 minor or intermediate ports regulated by state governments. Major ports handle the larger share of total sea traffic.

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Major Ports Of India And Their Hinterlands

Some of the important major ports in India are:

• Deendayal Port (Kandla): Located at the head of the Gulf of Kuchchh. Developed after Partition to serve western and northwestern India and reduce pressure on Mumbai port. Specializes in petroleum, petroleum products, and fertilizers. Has an offshore terminal at Vadinar.
• Mumbai Port: India's biggest port and a natural harbor. Strategically located near major international sea routes. Handles a large share of overseas trade with countries in the Middle East, Europe, and North America. It has extensive berths and the country's largest oil terminal. Its hinterland covers parts of Maharashtra, Madhya Pradesh, Gujarat, Uttar Pradesh, and Rajasthan.
• Jawaharlal Nehru Port (JNPT) at Nhava Sheva: Developed as a satellite port to Mumbai to alleviate congestion. It is India's largest container port.
• Marmagao Port: Natural harbor in Goa, situated at the entrance of the Zuari estuary. Remodeled to handle iron-ore exports to Japan. Konkan Railway's development extended its hinterland to Karnataka, Goa, and southern Maharashtra.
• New Mangalore Port: Located in Karnataka. Primarily handles the export of iron ore and iron concentrates. Also handles fertilizers, petroleum products, edible oils, coffee, tea, etc. Karnataka is its main hinterland.
• Kochchi Port: Natural harbor at the head of Vembanad Kayal, known as the 'Queen of the Arabian Sea'. Strategically located near the Suez-Colombo route. Caters to Kerala, southern Karnataka, and southwestern Tamil Nadu.
• Kolkata Port: Located on the Hugli river, 128 km inland from the Bay of Bengal. Developed by the British. Significance reduced due to competition from other ports and silt accumulation in the river. Hinterland includes U.P., Bihar, Jharkhand, West Bengal, Sikkim, North-eastern states, and provides facilities for land-locked Nepal and Bhutan.
• Haldia Port: Located downstream from Kolkata. Constructed as a satellite port to reduce congestion at Kolkata. Handles bulk cargo (iron ore, coal, petroleum, fertilizers) and other goods (jute, cotton, etc.).
• Paradwip Port: Situated in the Mahanadi delta (Odisha). Deepest harbor, suitable for large vessels. Developed mainly for large-scale iron-ore export. Hinterland includes Odisha, Chhattisgarh, and Jharkhand.
• Visakhapatnam Port: Land-locked harbor in Andhra Pradesh, connected to the sea by a channel. Outer harbor handles iron ore, petroleum, and general cargo. Andhra Pradesh and Telangana are its main hinterland.
• Chennai Port: One of the oldest ports on the eastern coast, an artificial harbor built in 1859. Limitations for large ships due to shallow waters. Hinterland is Tamil Nadu and Puducherry.
• Ennore Port: Newly developed port north of Chennai to relieve pressure on Chennai port.
• Tuticorin Port: Developed to relieve pressure on Chennai port. Handles a variety of cargo including coal, salt, food grains, oils, chemicals, and petroleum products.

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Airports

Air transport, while costly and unsuitable for heavy/bulky goods, plays an important role in international trade by offering the fastest mode of carriage and handling high-value or perishable goods over long distances. However, its participation in overall international trade volume is less compared to oceanic routes.

India has a network of major airports facilitating international trade and passenger movement. As of 2016-17, there were 25 major airports functioning in the country. Since 2017, under the UDAN scheme, many unserved or underserved airports, including heliports and water aerodromes, have been operationalized to boost regional connectivity and make flying more accessible.