Model Answer
0 min readIntroduction
India’s foreign trade has been a crucial driver of economic growth, contributing significantly to GDP and employment. In recent years, the global trade landscape has undergone significant shifts, marked by geopolitical tensions, supply chain disruptions (particularly post-COVID-19), and a growing emphasis on regionalization. India’s foreign trade, valued at approximately $770 billion in FY23 (as per DGFT data), has witnessed both robust growth and emerging vulnerabilities over the last decade. This answer will critically evaluate these trends, examining the key drivers, challenges, and future prospects of India’s international trade.
Phase 1: 2014-2019 – Moderate Growth & Policy Focus on Trade Facilitation
The initial phase (2014-2019) saw moderate growth in India’s foreign trade. Exports grew at an average rate of around 5-6% annually, while imports grew slightly faster. Key features included:
- Focus on Trade Facilitation: The government implemented measures like the Foreign Trade Policy (FTP) 2015-20, emphasizing ease of doing business, reducing transaction costs, and streamlining export procedures.
- Diversification of Export Markets: Efforts were made to reduce reliance on traditional markets like the US and Europe, with increased focus on emerging economies in Africa and Latin America.
- Commodity Composition: Engineering goods, petroleum products, gems and jewellery, and pharmaceuticals remained major export items. Imports were dominated by crude oil, gold, machinery, and electronic goods.
Phase 2: 2019-2022 – COVID-19 Disruptions & Supply Chain Realignment
The COVID-19 pandemic significantly disrupted global trade, leading to a sharp contraction in India’s exports and imports in 2020. However, a swift recovery followed, driven by increased demand for Indian goods and a global realignment of supply chains.
- Supply Chain Resilience: The pandemic highlighted the vulnerabilities of relying on single-source suppliers, prompting a push for diversifying supply chains and promoting domestic manufacturing through initiatives like the Production Linked Incentive (PLI) scheme (launched in 2021).
- Rise of E-commerce: E-commerce exports witnessed substantial growth, particularly in sectors like handicrafts and textiles.
- Increased Trade with China: Despite geopolitical tensions, trade with China continued to grow, albeit with a widening trade deficit.
Phase 3: 2022-2024 – Geopolitical Impacts & Focus on FTAs
The Russia-Ukraine war and rising geopolitical tensions further complicated the global trade landscape. India’s trade performance in this phase has been characterized by resilience, but also by new challenges.
- Energy Security Concerns: The war led to a surge in crude oil prices, impacting India’s import bill and contributing to inflationary pressures.
- Focus on Free Trade Agreements (FTAs): The government accelerated efforts to negotiate FTAs with key trading partners, including the UAE, Australia, and the UK, aiming to enhance market access for Indian goods. The India-Australia Economic Cooperation and Trade Agreement (ECTA) came into effect in December 2022.
- Export Diversification: Continued efforts to diversify exports, with a focus on value-added products and services.
Trends in Trade Balance & Composition
India consistently runs a trade deficit, primarily due to high imports of crude oil and gold. While exports have grown, they haven’t been sufficient to offset the import bill. The composition of trade has remained relatively stable, with engineering goods, petroleum products, and pharmaceuticals being key export items. However, there’s been a growing share of services exports, particularly IT and business process outsourcing.
| Year | Exports (USD Billion) | Imports (USD Billion) | Trade Balance (USD Billion) |
|---|---|---|---|
| 2014-15 | 313.2 | 447.5 | -134.3 |
| 2018-19 | 330.0 | 512.1 | -182.1 |
| 2022-23 | 451.0 | 715.5 | -264.5 |
(Source: DGFT, data as of knowledge cutoff)
Challenges & Concerns
- Trade Deficit: The persistent trade deficit remains a major concern, putting pressure on the Indian rupee.
- Non-Tariff Barriers: Indian exporters face non-tariff barriers in several markets, including stringent quality standards and regulatory hurdles.
- Infrastructure Deficiencies: Inadequate port infrastructure and logistics bottlenecks continue to hamper trade efficiency.
- Geopolitical Risks: Rising geopolitical tensions and protectionist measures pose a threat to India’s trade prospects.
Conclusion
India’s foreign trade has demonstrated resilience in the face of global headwinds over the past decade. While growth has been uneven, the government’s focus on trade facilitation, diversification, and FTAs has yielded positive results. However, addressing the persistent trade deficit, improving infrastructure, and mitigating geopolitical risks remain crucial challenges. Moving forward, India needs to prioritize value-added exports, strengthen its integration into global value chains, and leverage digital technologies to enhance its trade competitiveness. A proactive and adaptable trade policy will be essential for realizing India’s full potential as a global trading power.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.