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1. Size of India’s Foreign Trade: Size of foreign trade means the total value and volume of merchandise imports and export of a country.

• If the payments made towards imports and revenues generated from export rises and the share of country’s trade in world trade rises, then it is concluded that the size of the country’s foreign trade had increased.
• After independence in the initial years due to low development the size of imports remained large and owing to lower capacity to export india’s exports remained lower.
• To sustain international competition, after 1991 the demand for technology, petrol, etc. remained very high but along with this exports increased significantly.
• The percentage share of trade in India’s GDP was 19% in the year 2001, which increased to 38.3% in 2014.

2. Nature of India’s Foreign Trade: Nature of trade means a picture of the items of merchandise imports and exports.

• In the decade between 1950 and 1960, in a less developed country like india, food grain imports and developmental imports were high. Whereas exports of primary goods like tea, coffee, jute, ores and minerals etc. were much higher.
• When a country like India starts developing more, in the decades of seventies and eighties imports of food grains tends to fall and exports of primary goods tends to fall and that of industrial goods tends to rise.
• After 1991, the nature of exports and imports changed significantly in India. Imports of food grains, other agricultural goods and capital goods declined in total imports. Whereas the export of traditional goods declined and that of industrial goods and non-traditional items increased.
• In 2014-15, India attained self-reliance in grains and other food items. India’s merchandise imports was reduced to 9.8 % while due to diversification in the development process import of new goods increased to 46.5 %.
• The nature of exports has also changed. India’s merchandise exports of primary goods reduced to 12.3% in 2014-15. Likewise export of leather products declined to 1.3%, that of textile goods to 2 %, ready-made garments increased to 5.4 %, manufactured products increased to 66.7 % and petroleum products increased to 18.5 % during the same period.

3. Direction of India’s Foreign Trade:

• Direction of foreign trade means the trade relation of a nation with various countries of the world.
• Before independence large proportion of our trade was with England.

Exchange rate:

• “The rate at which the currency of one country can be converted into currency of another country is called exchange rate”.
• “Exchange rate is the price of a foreign currency in terms of domestic currency”.

Example:

• Suppose, exchange rate of US $ 1 = ₹ 60. This means that in order to buy 1 US dollar, an Indian will have to pay ₹ 60. This also means that if an American comes to India, his 1 dollar will fetch him 60 rupees.
• A rise in the exchange rate for India means that the value of Indian currency has declined in the international market.
• This means that India will have to pay more Indian rupees to buy one unit of foreign currency. This also means that the foreign currency has become expensive and hence value of Indian rupees has fallen.
• Suppose, the exchange rate is US $ 1 = ₹ 60.
• When exchange rate rises for India, US $ 1 = ₹ 65. When exchange rate falls for India, US $ 1 = ₹ 57.
• It should be noted that in reality, the actual analysis of rise or fall in the value of a currency, the time gap between the rise or fall in value of the currency, prices of goods iri the various countries, etc. are taken into consideration for deciding the exchange rate.

The following data table shows India’s foreign trade in 1991-92,1998-99 and 2014-15.

India’s foreign trade after 1991 (in million US $)

Source: Economic Survey of India, 2015-16

As can be seen in table, although India’s foreign trade has increased over years but India’s exports have never exceeded its imports. Hence, our balance of trade has always remained negative.

• If we look at the growth of world trade then wq can see that India’s share in the world trade has remained low.
• However, in present times India is playing an important role as a developing nation in determining the direction of world trade.
• India’s exports have grown significantly. Moreover, rise in exports are also playing an important role in increasing our GDP.
• The down side is that even though India’s exports are rising significantly, our imports are still higher than our exports. Imports also constitute a greater percentage of GDP than exports.
• Rising imports is a sign that India is developing and so it is demanding more and more goods.
• Rising exports means India is able to produce exportable surplus of desirable , quality and sell it at competitive prices in the world market.
• Share of India’s total trade in world trade in 2014-15. was about 2.07% at 19th rank.

Share of India’s exports in the world exports

India’s Share in Global Trade:

• India’s share in the world trade has remained low but as a developing nation India plays an important role in determining direction of world trade
• In india the growth rate of imports has been higher than the growth rate of exports. Hence, imports constitute a greater percentage of GDP than exports.
• India is able to export more because it is now able to produce better and desirable quality of goods at a competitive price and is able to generate more exportable surplus.
• Share of India’s total trade in world trade was about 2.07% in the year 2014-15.
• Share of India’s exports in the world exports was 1.7% in the year 2014 and the rank of India in world’s export was 19.

Impact of exchange rate:

Rise or fall in exchange rate has a major impact on our import and export trade.

Impact on import:

When the exchange rate rises for India, the value of Indian rupee (₹) falls. So, India has to pay more rupees to purchase foreign goods i.e. importing becomes costlier. As a result, the demand for imported goods decline.

Impact on export:

• In terms of export, when the exchange rate rises for India, India can export more quantity of goods in lesser amount. This boosts export trade.
• For example, if earlier by spending US $ 1, a foreign trader could purchase goods worth ₹ 60, then now he can buy goods worth ₹ 65. Hence, export ₹ from India tend to rise.
• The reverse happens when exchange rate for India falls.

Correct option is (C) 19.1%

Correct option is (C) 38.3%

Correct option is (D) -137.5 million $

Correct option is (A) 33.2 million $

Correct option is (D) OPEC countries

After independence India’s trade:

England: 1960-61: 19% imports of total imports

• After 2007: Fell to less than 2 % 1960-61:26.8% exports of total exports
• After 2007: Reduced to 4 %

USA: 1960 -61:29% imports of total imports

• After 2007: Fell to less than 8 % 1960-61: 16% of total exports
• After 2007: Fell to 12.7%

OPEC: Due to industrialization and development imports of petroleum increased.

• 1960-61: Merchandise export was 4.1%
• After 2007: Increased to over 16 %

Russia:

• Our imports from Russia were high. Which declined since 1980 after the economic crisis in Russia.
• Total merchandised exports declined from 4.5 % to 0.6 % after 2007.

Trade with traditional partners (England, USA, OPEC, Russia, declined gradually and trade with developing countries (East Asia, Central Asia, Africa) started increasing.

Developing countries: 1960 – 61: Imports were 11.8%,

• After 2007: Increased to 32 %
• 2014 – 15: Increased to 59 %
• 1960-61: Exports were 14.8%
• After 2007: Increased to 42.6 %

Thus, India has made successful attempts to its trade with different countries and in different directions.

Balance of Payments: An accounting statement showing the value of imports and exports of tangible (visible) and intangible (invisible) goods during a year is called balance of payments.

Types of Balance of Payments:

1. Balanced: When the value of entries on credit side equals that on debit side, then balance of payment is said to be in balanced.

2. Unbalance: When the value of entries on credit side, is not equal to entries on the debit side, then balanced of payment is said to be in unbalanced.

• Surplus In the balance of payments:
  If receipts are more than payments or value of entries on credit side is greater than the value of entries on debit side, then there is surplus in the balance of payments.
• Deficit In the balance of payments:
  If receipts are less than payments or the value of entries on credit side is less than the value of entries on debit side, then there is deficit in the balance of payments.

When domestic cost of production is higher, it becomes cheaper and easier to import such goods from other country.

1. The geographical and occupational mobility of factors of production is lesser in international trade,
2. Trade in many varieties of goods,
3. Requirements of diplomatic efforts,
4. Impact of political and social ideologies, and
5. Involves more permissions and taxes.

International trade becomes more challenging for traders due to the difference of environment, language, culture, customs, preferences, habits, tastes etc. present in different countries.

Nature of imports and exports means composition of trade, that is, the types/ items of merchandise imports and exports of a country.

Nature of International Trade means such special features and aspects of trade which gives it a unique identity from other activities. In international trade

• The geographical and occupational mobility of factors of production is lesser.
• Trade takes place in many varieties of goods.
• It is more challanging in nature.
• It requires diplomatic efforts.
• It requires knowledge and forecasts regarding the value of different currencies.
• It is a joint effort of nations and international organisations.
• It has impact of political and social ideologies.
• It has vast scale.
• It involves more permissions and taxes.
• It involves higher degree of competition.

• The special features and aspects of trade which gives international trade a unique identity as compared to other activities is referred to as nature of international trade.
• The nature of international trade is determined by the circumstances affecting trade, policies and faws governing trade.

These are discussed below.

1. The geographical and occupational mobility of factors of production is lesser in international trade:

• Due to social and other reasons, the mobility of labour is lesser in international trade. .
• Same is the case with certain type of bulky and huge capital such as machinery.
• Also, there are certain policy restrictions on mobility of some other types of capital. Entrepreneurs are also less mobile for the same reasons as labourers but in present times entrepreneurship has become more mobile.
• The geographical mobility of land is nil.
• Thus, due to the lower or no mobility of factors of production, the size of international trade gets restricted to some extent.

2. Trade in many varieties of goods:

• The world produces countless goods and services. Need of each country is different and so the countries come together for trading “out of such a large varieties of goods and services. The need of goods and services are different for people belonging to different living standards.
• ‘Variety’ that one gets through international trade becomes the base for success and prosperity of international trade.
• For example, in countries where there is scarcity of electricity, there will be greater demand for manually operated machines while in countries with abundant supply of electricity there will be greater demand for automatic machines.

3. More challenging in nature:

• International trade is more challenging for traders because there occurs large change in the environment, language, culture, customs, preferences, habits, tastes, etc. from country to country.
• Traders have to overcome these barriers in order to trade.

4. Diplomatic efforts are needed:

• Traders alone cannot set-up and develop international trade.
• The government of every nation has to make diplomatic efforts such as hold informal meetings with other nations, organize international trade fairs, etc. so that countries can develop relations among themselves, know about the opportunities and enter into trade.
• For example, in order to promote international trade in Gujarat, the state . government organizes the ‘Vibrant Gujarat Summit’. In this summit, representatives of governments and businesses/industries of various countries participate to exchange business information as well as to get an idea about the policies of the state, culture of people, etc.

5. Knowledge and forecast regarding the value of different currencies:

• Payments in international trade are to be made in internationally acceptable currencies. Moreover, every trading country has to convert its national currency in internationally acceptable currency such as dollars or pounds.
• Traders need to have proper knowledge about the value of various currencies and the changes in their values that take place on a daily basis.
• For this the traders have to consult experts who can guide in matters of exchange rates.

6. Joint effort of nations and international organizations:

• International trade can develop only with the joint efforts of governments of various countries of the world as well as of international organizations like World Trade Organization.
• The countries must have the will to trade. For international trade, the countries will have to make policies that favour trade.
• Moreover, the social and cultural groups must be open to trade, the industry – associations must co-operate to enter into trade and enhance trade and so on.

7. Impact of political and social ideologies:

• The size and direction of international trade is greatly influenced by the political and social events taking place in the world. For example, trade relations between nations get distributed owing to events like world war, global depression, etc.
• On the other hand if world leaders promote international trade then the countries rather than getting involved in wars would start focusing on trade and the world trade would flourish.
• The size and direction of a particular nation’s trade is determined much by the ideology of that nation, social structure, historical events, etc.

8. Vast scale:

The scale of international trade is vast as it involves several countries, several varieties of goods, several rules, international organizations, etc.

9. Involves more permissions and taxes:

For international trade the traders need to take several permissions and licenses from their respective countries.

• They need to clear procedures regarding tradable goods and quality of goods, clear the custom procedures, fulfill the requirements of international freight and transport procedures, the quality tests for different countries (food and drug quality tests for different countries are different), etc.
• Moreover, the quality standards vary among countries. So, traders need to have information regarding methods of production, packing, taxes, etc. that prevails in different countries.

10. Involves higher degree of competition:

• A product may be produced and sold by several countries in the world market and so there is heavy competition among the sellers.
• Similarly, a product may be demanded by consumers of several countries and so the degree of competition among buyers is also very high.
• Moreover, the risk of creating a market and generating demand for a product is very is high in international trade.
• High quality standards have to be maintained, huge promotional expenses as well as costs have to be incurred and greater efforts have to be made to satisfy customers of a foreign country.
• Even after putting so many efforts if the producer or trader is not able to achieve a sizeable amount of market share then he may have to incur heavy losses.

Conclusion:

Thus, international trade is multi-faceted, highly dynamic and volatile. It involves support and effort of people and diplomats of various countries. Also, it is very risky and tough. But, on the other hand it opens avenues of trade across the world. For trader, the entire world market opens up and he can make huge profits and span his business at world level.

The difference between Domestic and International trade is

• Based on scale
• Based on currencies and modes of payment
• Based on language; culture and society
• Based on transport cost
• Based on degree of competition
• Based on consumer satisfaction and
• Based on administrative and legal systems.

• Trade: Trade is a commercial activity which involves exchange of goods and services for earning profit.
• Domestic (Internal) Trade: Trade which takes place within the geographical boundary of a nation is called domestic (internal) trade.
• International (Foreign) Trade: Trade which takes place outside the geographical boundary of a nation is called international or foreign trade.

The nature of international trade is quite different from that of domestic trade and it involves several hurdles and challenges.

The basic differences between the two forms of trade are summarized
below:

1. Based on the scale:

The scale of international trade is much larger than that of domestic trade as it involves more countries, more variety of goods, more procedures, more and stricter rules, etc.

2. Based on currencies and modes of payment:

• In domestic trade, financial transactions take place only in domestic currency and payment is transferred from one bank to another in the same country.
• On the other hand, international trade involves several currencies and exchange rates. It also involves converting the currency at a determined exchange rate into an internationally acceptable currency.
• Payment is also to be made in internationally acceptable currency.
• Moreover, in international trade, the procedures are more rigorous and they involve several permissions, clearances and duties. Buyers have to obtain letter of credit from their respective banks for assurance of payment to sellers.

3. Based on language, culture and society:

Transactions in domestic trade take place within a familiar social, cultural and language set-up whereas in international trade these are very different.

Hence traders have to be more careful so that they do not fall into ‘ controversies or hurt sentiments and even to avoid legal offences.

4. Based on transport cost:

• The transport cost in international trade is much higher than the transport cost in domestic trade.
• Moreover, taxes are to be paid for each country that the goods cross. This is not the case in domestic trade and so international trade is costlier.

5. Based on degree of competition:

• Although in domestic market there are many producers but the nature of factors of production and technology in a country are more or less same. Hence, the producers cannot produce goods with a very wide range and distinction.
• In international trade, producers/traders use products and processes of their own countries which are quite different from one another. As a result, we can see a wide range of products that too quite different from each other.
• The producers of various countries compete against each other in international market.
• For example, when the production and sale of foreign cars was not allowed in India, the competition among Indian car manufacturers was not very high as compared to today. Today, various manufactures belonging to several countries compete with Indian companies in terms of their car models, finishing, features, price, etc.
• Foreign car makers make continuous efforts to increase their share in the Indian car market.
• Thus, there is lesser competition in domestic trade as compared to international trade.

6. Based on consumer satisfaction:

• It is not very difficult to satisfy consumers in domestic market because the trader is more or less aware about the social set-up, level of awareness and education, information, preferences, values, tolerance level, etc. of the people. Moreover, these conditions are quite similar within the country.
• ‘This helps the producer to produce as per the demand of consumers and meet their expectations.
• In international trade, these aspects are different in different countries of the world. Hence, it is quite difficult to predict requirements of customers at international level and satisfy them.

7. Based on administrative and legal systems:

• In domestic’ trade, the traders very well know the administrative and legal systems and procedures and so they face relatively lesser difficulties in undertaking trading activity.
• In case of international trade all these things are quite different. These things create several problems for the traders to trade.
• It is almost impossible for a trader to trade without understanding the tax system, the system of obtaining licenses’, permissions as well as the-legal systems of various countries of the world. Moreover, all these processes are quite expensive too.

OPEC (Organization of Petroleum Exporting Countries) trade Petrol products to various countries.

• A commercial/business activity which involves exchange of goods, services, resources, capital, technology, know-how, intellectual property, etc. with the motive of profit is called trade.
• Trade which takes place within the geographical boundary of a nation is called internal trade or domestic trade and that takes place outside the geographical boundary of a country is called international trade or foreign trade.

Correct option is (B) Balance of Payments

Correct option is (B) Double entry book keeping system

1. They have different currencies and modes of payment,
2. Difference of languages, culture and society,
3. Large difference in transportation cost,
4. Based on degree of competition.

Gujarat government organizes ‘Vibrant Gujarat Summit’ to promote international trade.

Balance of Payments:

An accounting statement that shows the value of imports and exports of tangible (visible) and intangible (invisible) goods during a year is called Balance of Payments (BoP).

• Tangible or visible goods means goods which have a physical existence i.e. they can be touched and seen. Intangible or invisible goods means services such as software development, banking, logistics, etc.
• Balance of Payments has a credit entry and a debit entry. All receipts by the home country from foreigners are recorded in the credit entry side and all payments by the home country to foreigners are recorded in the debit entry side.

Types of Balance of Payments: 

Balance of Payments can be either

1. Balanced or
2. Unbalanced.

1. Balanced Balance of Payment:

When the value of entries on the credit side equals that on the debit side, Balance of Payments is said to be balanced.

2. Unbalanced Balance of Payment:

When the /aiuSwf entries on the credit side is not equal to entries on the debit side, Balance of Payments is said to be unbalanced.

An unbalanced Balance of Payments can be further classified as follows:

1. Deficit Balance of Payments:
   In the statement of Balance of Payments, if payments are more than receipts i.e. the value of credit side entries is lesser than the values of debit side entries, then there is a deficit in the Balance of Payments.
2. Surplus Balance of Payments:
   • In the statement of Balance of Payments, if receipts are more than payments i.e. the value of credit side entries is greater than the value of debit side entries, then there is a surplus in the Balance of Payments.
   • According to the double entry book keeping system, a balance of payments always balances. However, in reality there can be a deficit or a surplus in the balance of payments.

Balance of Payments (BoP) consists of two accounts. They are:

1. Current account and
2. Capital account

I. Current Account: The current account records the credit and debit entries for :

1. Trade in merchandise goods (tangible goods):

• Receipts obtained by exporting items are recorded as credit entry (i.e. a ’+’ entry). Payments made for items imported are recorded as debit entry (i.e. a entry).
• The sum total on this section of current account (i.e. the sum of credit’+’ entry and debitentry; or say the difference of import and export) is called • the balance of trade or simply trade balance.
• If the payments for merchandise imports (i.e.entries) are greater than the receipts from merchandise exports (i.e. V entries) then there is a deficit in the balance of trade. The vice versa situation is called surplus on the balance of trade.

2. Trade in services (intangible things):

• The incomes from invisibles are recorded on credit side and payments on debit side.
• This includes banking, insurance, transportation, etc. through which transactions of import and export have occurred. ‘
• Current Account Balance = Trade Balance + Income Balance + Net Unilateral transfer.

II. Capital Account:

• Capital account records receipts and payments from transactions on assets such as assets like stocks, gold, capital loans, etc. and other forms of fixed capital.
• The total of Current Account and Capital Account is called the Balance of Payments.

Factors influencing Balance of Payments:

• Factors influencing balance of payments means those factors that affect imports, exports, movement of capital, movement of factors of production, investment, lending, etc. in a nation are called factors influencing Balance of Payments.
• Deficit or surplus in the Balance of Payments can arise due to such factors.
• The impact of such factors usually depends upon the level of economic development of a country.

Some of these factors are:

• Exchange rate
• Prices of tradable goods in home country and in foreign countries
• Variety and quality of tradable goods
• Inevitable imports
• Level of economic development of the country
• Legal restrictions on trade
• Trade supporting facilities and infrastructure like transport, communication, etc.

Correct option is (D) 140-fold

The export of readymade garments , increased from 0.1% in 1960-61 to 5.4% in 2014-15.