Foreign Trade Policy refers to the complete framework of laws, regulations and international arguments and negotiating stances adopted by a government to achieve legally binding market access for domestic firms. It provides the basic policy framework of translating this vision into specific strategies, goals and targets.
Strategic options for trade policy
- Free trade policy– no restrictions, absence of tariffs, quotas, exchange restrictions, taxes and subsidies on production, factor use and consumption
- Protective trade policy– objective of protecting domestic economy from foreign countries
- Inward looking trade policy– import substitution, domestic production
- Outward looking trade policy– (export led growth) it encourages not only free trade but also the free movement of capitals, workers, enterprise and students, and welcome to the mncs, and an open system of communications.
- Tariffs and quotas– talk about effects with reference to domestic production and increase in demand
Any foreign trade can be divided into four categories
- Volume of trade (quantity)
- Composition of foreign trade (which commodities were traded)
- Direction of trade (to which countries)
- Balance of trade (ratio of export to import)
Impact of import substitution
Positive impacts
- Saves foreign exchange
- Creates protected market for domestic producers
- Builds industrial sector
- Increasing demand for domestic goods
Negative impacts
- Restricts growth
- Decreases efficiency of domestic producers
- Creates a local Monopoly
- Low competition implies lack of development and modernization
Export promotion scheme
- Related to both export and import
- Capital goods are imported at zero custom duty
- Only those capital goods are applicable under the scheme which enhances India’s export competitiveness in global market
Foreign trade of India after 1947
Volume of trade : increased, 1947- 792 crores, 2018- 3623710 crores
Composition :
- before 1947 : only traditional goods- tea, jute, skins, silk etc
- now : modern goods like software, ready made garments etc
Change in composition of exports
- Decrease in percentage share of agri products in total exports
- Decrease in percentage share of conventional items in total exports
- Increase in percentage share of manufactured goods in total exports
- Increasing importance of exports of gems and readymade garments
- Export of petroleum products
- Increase in export of services
Change in composition of imports
- Decrease in import of agri products
- Increase in import of capital goods
- Increase in import of petroleum products
- Increase in import of chemical fertilizers
Direction of trade
- Changes in direction of exports
- Export is increasing with European union and developing countries
- Decreasing with England and Russia
- China’s share is increasing every year
- Japan’s share remains the same
Changes in direction of imports
- Share of European union and developing countries is increasing every year
- Japan’s share is same
- USSR and England are losing shares
- China is acquiring more and more share in imports
Balance of trade
(becoming favourable year by year)
Three types– favourable, unfavourable, equilibrium
Refer Economics Important Topics for more other such topics