INSTITUTE OF MANAGEMENT STUDIES PROJECT REPORT for SUBJECT: ENVIRONMENT AND ECONOMICSPOLICIES on TOPIC: Composition and trends of Indian foreign trade over past 5 years SUBMITTED TO: SUBMITTED BY: DR. TAPAN KUMAR NAYAK Aditya Pal Singh (BM-09015) Aditya Srivastav (BM- 09016) Akanchha Nayak (BM- 09017) Akansha Aggarwal (BM- 09018) Akansha Awasthi (BM-09019) 1
studies pattern of indian export and import over past 5 years and relation between the two
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INSTITUTE OF MANAGEMENT STUDIES
PROJECT REPORTfor
SUBJECT: ENVIRONMENT AND ECONOMICSPOLICIES
on
TOPIC: Composition and trends of Indian foreign trade over past 5 years
SUBMITTED TO: SUBMITTED BY:DR. TAPAN KUMAR NAYAK Aditya Pal Singh (BM-09015)
SL. NO. NAME ROLL NO. 1 Aditya Pal Singh BM- 09 015 2 Aditya Srivastav BM- 09 016 3 Akanchha Nayak BM- 09 017 4 Akansha Aggarwal BM- 09 018 5 Akansha Awasthi BM- 09 019
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DECLARATION
We hereby declare that the report on “COMPOSITION OF FOREIGN TRADE OF INDIA OVER 5 PAST YEARS” Is written under the guidance of Mr. Tapan Kumar Nayak .The empirical conclusion and finding in the report are based on the data collected by us and the entire report is not a reproduction of any other sources.
Hereby it is certified that the project work entitled “Composition and trends of Indian foreign trade over past 5 years” is a work carried out by
Aditya Pal Singh ROLL NO. BM-09015Aditya Srivastav ROLL NO. BM-09016Akanchha Nayak ROLL NO. BM-09017Akansha Aggarwal ROLL NO. BM-09018Akansha Awasthi ROLL NO. BM-09019
It is certified that all the subjective matter carry out by them is verified truly authentic. The project report has been approved as it satisfies the academic requirements in respect of Project Work.
We would like to express our heartfelt thanks to many people. This Project is an effort to contribute towards achieving the desired objectives. In doing so, we have optimized all available resources and made use of some external resources, the interplay of which, over a period of time, led to the attainment of the set goals. We, through the following line, would like to make our gratitude for these people known.
It is our heartfelt honor to thank Dr. Tapan kumar Nayak faculty and project guide for his valuable guidance in successful completion of this project. This project would not have seen the light of the day but for his sustained direction, supervision and continuous encouragement that saw us sail through the difficulties faced. His freehandedness and enthusiasm had an infectious influence. There are many more people whose contribution to this endeavor cannot be overlooked.
We express our sincere thanks to all the people who, directly or indirectly, contributed in time, energy and knowledge to this effort.
I would like to express my sincere gratitude to Prof. Tapan Kumar Nayak for giving me the chance to explore the underlying topic of composition of foreign trade of India I would also like to thank Mr. Sanjeev Kumar Mangla who has guided us for this project without which this could not have been accomplished.
I greatly acknowledge my indebtedness to all my team members and other staff members who rendered direct or indirect help in completing the project.
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ACKNOWLEDGEMENT
We would sincerely like to thank our project guide Dr. Tapan Kumar Nayak, for enabling us to successfully carry out the project work through his constant guidance, endless support and continuous involvement in the project.
It was really worthwhile to receive help from Mr. Sanjay Mangla, who in person was always present to help us out in maintaining the system upon which we were working and helping to resolve the problems that were proving to hinder our progress.
Finally, we owe a great deal of sincere thanks to the faculty members who have been of great support from time to time along with our friends, who kept encouraging us all along.
Objective:- To study the composition and trends of Indian foreign trade over past 5 years and to find if any relation exists between export and import.
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INTRODUCTION
The economy of India is the 12th largest economy in the world by market exchange rates and the 4th
largest by Purchasing Power Parity (PPP). In 1990s, following the economic reforms from a socialist-inspired economy, the country began to experience swift economic growth, as market opened for international competition. In the 21st century, India is an emerging power with vast human and natural resources, and huge knowledge base. Economists predict that by 2020, India will be among the largest economies of the world.
India was under socialistic democratic-based policies from 1947 to 1991. The economy was characterized by regulations and public ownership, leading to corruption and slow growth rate. Since 1991 continuing economic liberalization has moved the economy towards a market based system. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth. In 2008 India established itself as the world's 2nd largest growing economy. However, year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP.
The international trade has been growing faster than world output indicates that the international market is expanding faster than the domestic markets. There are indeed many Indian firms too whose foreign business is growing faster than the domestic business. This is manifested/ necessitated/ facilitated by the following facts:
(a) The Competitive business Environment (b) Globalization (c) The universal liberalization Policy. Table - 1 Growth of World Merchandise Exports
Year Value of merchandise exports(in Billions of US$)
1950 55
1960 113
1970 280
1980 1846
1990 3311
2000 6350
2008 6621Source:- www.wto.org
Table-1 shows the growth of world merchandise exports. The table indicates that during 1950-60, the value of world exports become double. In the next 10 years it increased nearly 2 ½ times. During 1970s, the value of the world exports increased by about 5 ½ times. Worldwide inflation, particularly the successive hikes in oil prices, significantly contributed to sharp increase in the value
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of exports. During 1980-90, the value of world exports increased by 80%. Between 1990-2000, it increased by over 90%. In fact, exports of developing countries have been increasing faster than those of the developed.
The Second half of the 20th century has seen trade expansion substantially faster than output. In the last two decades of the 20th century, world trade has grown twice as fast as world real GDP (6%versus 3%). India presented an interesting case. There was near stagnation in its foreign trade-GDP ratio for about four decades since the commencement of development planning. During this period it was around 15%. The inward looking economic policy, import compression and slow progress on the export front were responsible. Since the economic liberalization, in 1991 there has however, been an increase in India’s foreign trade-GDP ratio – it is about 20% now. Meanings of International Trade:- Internal trade refers to the exchange of goods and services between the buyers and sellers within the political boundaries of the same country. It may be carried on either as a wholesale trade or a retail trade.
External trade or international trade, is the trade between different countries i.e. it extends beyond the political boundaries of the countries. In other words, it is the trade between two countries. Hence, it is also known as foreign trade. Trading with nations beyond the seas is however not new to Indians. Evidences about our international trade are found in the ancient literatures of our country. But the volume of such trade was insignificant and continued to remain so tight through the middle ages and up to the advent of the British rule in India. It is only after the British rule that India’s foreign trade took a definite shape.
International trade on large scale has become a phenomenon of the 20th century especially after the IInd World War. There is practically no country today, which is functioning as a closed system. Even socialist countries like Russia and China are now taking concrete steps to capture foreign markets for the products produced in their country. International trade, thus, has become as essential ingredient of the normal economic life of any country.
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Similarities and Differences between Internal and International Trade:- The general procedure and operations are similar to both internal trade and international trade. The following are the similarities between the two:-
1.Satisfaction of Consumer: In domestic trade and in international trade, success depends upon effectively satisfying the basic requirements of the consumers.
2. Goodwill Creation: It is necessary to build goodwill both in the domestic market as well as
in the international market. If a firm is able to develop goodwill of the consumers, its task will be much simpler than the one, which is not able to build up its own reputation. In both the cases, the seller should take all positive measures to gain the confidence of the consumers in his product.
3.Market Research: The marketing program should be formulated after a careful market research. Failure to assess the target market shall ultimately bring failure in the task of marketing.
4.Product Planning and Development: Research and development with a view to product improvement is necessary in both internal and international trade. The marketer should keep a constant watch over the changes occurring in the consumer’s tastes and the preferences and develop or modify his product to suit the needs of his customers.
However, there are certain special features, which differentiate internal trade from international trade. The difference are as follows:-
1.Demand and Supply: Demand and supply can`t work out their full effects where foreign trade is concerned. Where as such factors can work out their full efforts in the case of internal trade.
2.Physical Obstacle to Commerce: Where international trade is carried on, a far greater degree of inequality between conditions of production in different countries is necessary to stimulate trade when the countries are widely separated than when they are adjoining.
3.Artificial Barriers to Trade: The natural difficulties may be increased by artificial barriers to trade, either through prohibitive laws as in war time of through customs duties or protective tariffs.
4.Obstacles of Mobility of Capital: Men who refuse to leave their own land may invest capital abroad. A foreign loan must offer a much higher rate of interest than a home loan. Not only is there a real risk of loss of interest and even capital, but an investor feels a sense of insecurity when money is invested abroad.
5.Differences in Economic Environment from country to country: Different countries may have different facilities for carrying out productive activities. Differences in system of national and local taxation, regulations for health, factory organization, education and insurance, policy regarding the transport and public utilities, laws relating to industrial combinations and trade, etc., do exist between countries. These differences bring about a
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difference in the costs of production.
6.The geographical and climatic conditions: they may give rise to territorial division of labour and localization of industries. Some countries may have natural resources is abundance such as iron ore, coal, etc., whereas in some other countries climatic conditions give advantages to them.
7.Long-distance: International trade is generally of long-distance. This may affect the transport costs and the cost of different factors of production.
8.Preference: Preference for home and the prejudice against foreigners remain as one of the major factors that would explain as to why the rates of earning of the different of equal efficiency would not be equalized between different countries.
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Benefits of International Trade
The various gains of international trade are as follows:
1.International Specialization: International trade enables to specialize in the production of those goods in which each country has special advantages. Some countries are rich in minerals and in hydroelectric power. Some are blessed with extensive land but have very little population. In the absence of trade, every country will be forced to produce all types of goods, even those for which they do not have facilities for production. International trade, on the other hand, will enable each country to specialize in the commodities in which it has absolute or comparative advantages. Thus, international trade brings about specialization and also all other advantages associated with such specialization.
2.Increased Production and Higher Standard of Living: It is well known that specialization leads to the following: ◦ Best utilization of resources. ◦ Concentration on the production of goods in which they have advantages. ◦ Saving of time and energy in production and perfecting the skills in production. ◦ Inventing and using new techniques of production.
All these indicate one basis advantage viz., increased production. Increased production will also mean higher standard of living for people in both the countries.
3. Availability of Scarce Materials: International trade is the only method by which a country can supplement its storage of resources or certain essential materials. There is no country in the world which has all the resources it requires. At the same time, there are some countries which have been blessed by nature with some rare materials. International trade ensures equal access to raw materials for all countries.
4. Equalization of Prices between Countries: An important gain of international trade or the effect of it is the tendency of internationally traded goods to have the same price everywhere. Through international trade, supply is increased in the importing country and thereby the prices are reduced.
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EXPORTS
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Department of CommerceSystem on Foreign Trade Performance Analysis (FTPA)
We will consider only the top 5 commodity group as it constitute 75.23% of total exports.
1. ENGINEERING GOODS:- Export of items under this group comprising
• Manufactures of Metals,
• Machinery and Instruments,
• Primary and Semi-finished Iron & Steel and
• Transport Equipment
this sector saw a growth rate of 13.04% over past 6 years which is nominal seeing to the growth of indian economy.
2. GEMS & JEWELLERY:- This part saw a nominal growth of 15.16%
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3. PETROLEUM PRODUCTS:- This section consists of re-export of processed goods of crude petroleum. This section constitute a good portion of indian exports to great surprise. It growed by 14.6%
4. CHEMICALS & RELATED PRODUCTS:- Three out of the four sub-groups under this head viz. Basic Chemicals, Pharmaceuticals & Cosmetics, Plastics & Linoleum, Rubber, Glass.
This section saw a nominal growth of 13.04%
5. TEXTILES: This section mainly comprises of:-
1. wool
2.silk
3.jute,etc
this section saw a growth of 10.53%.
6. HANDICRAFT:- Another interesting section to discuss here is the handicraft section which saw a decline which is opposite to all other sections. This section includes Metal Art ware, Textiles (hand printed), Wood wares and Zari goods. It saw a decline of 40.09% this may be due to the reason that it highly depends upon the taste and preference which may change with time and region so that might be the possible reason for such an abrupt behavior.
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IMPORTS
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Department of CommerceSystem on Foreign Trade Performance Analysis (FTPA)
A) BULK IMPORTS 134,451.00 620,105.80 361.21 46.25
B) PEARLS, PRECIOUS & SEMI-PRECIOUS STONES
32,757.32 66,410.18 102.73 4.95
C) MACHINERY 42,752.62 183,033.69 328.12 13.65
D) PROJECT GOODS 1,819.62 14,383.74 690.48 1.07
E) OTHERS 147,327.10 456,654.36 209.95 34.06
Total 359,107.66 1,340,587.75 273.31 100
Trends in import
The indian import saw a increment of 273.31% over a period of 6 years (including projections for year 2009) this an massive increment as the oil & petroleum products saw a massive growth on account of increasing energy demand of the country also fertilizer,suar and other bulk goods saw a healthy growth in their consumption back home.
This is a matter of concern as the deficit in foreign trade is increasing year after year.
The major group of the commodities saw the following trend:-
5. Bulk imports:- Import of items under bulk category as a whole comprising inter-alia Fertilizers, Cereals, Sugar, Edible Oil, Iron and Steel and Petroleum Crude and Products, Paper and newsprint saw a phenomenal growth of more than 361%. while oil and related products features growth over years as a matter of increased awareness and high fuel prices and to some extent better public transport facilities like metros and other projects and rules it saw only growth of mere 4% during April-Dec 2008-2009 this shows that expenses on other expenses are increasing and it can be well understood by the fact that the economic development is picking up over years and as such requirements of other commodities increased in this section.
6. Pearls, Precious & Semi-precious stones:- this section grows at a constant pace each year without much fluctuations as India is becoming a hub to finish the semi-finished jewelry products and then re-export it to other countries. This sections features a growth of 102.73%.
7. Machinery:- some of the major heads under this section are imports for
1. transmission apparatus for radio-telephony, radio-broadcasting
2. aircraft (for example, helicopters, airplanes); spacecraft
3. automatic data processing machines,etc.
This section witnessed a growth of 328.18% and this very much understood by the increased expenditure on defense and advancement in the field of aerospace.
8. Project goods:- Project Imports are the imports of machinery, instruments, and apparatus etc., required for initial sating up of a unit or for substantial expansion of an existing unit. This section
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saw an increment of triumphing increase of 690.48% this phenomenal increase can be well understood by the good GDP growth figures shown in years previous to 2008.
9. Others:- This head includes various other remaining commodities like
1. Gold & Silver
2. Artificial Resins & Plastic Materials
3. Professional Instruments etc. except electrical
4. Coal, Coke & Briquittes, etc.
5. Medicinal & Pharmaceutical Products
6. Chemical Materials & Products
7. Non-Metallic Mineral Manufactures,etc.
This section witnessed a growth of 209.95% which is well justified by the growth of different horizons of the indian market.
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Analysis
Y-O-Y Analysis
Rk = n*Ʃdx*Ʃdy – Ʃdx*dy
n*Ʃdx2 – (Ʃdx)2 * n*Ʃdy2 - (Ʃdy)2
= 6*42.74*63.99 – 357458.16
6*199280.39 – 42.742 * 6*641635.63-63.992
= -341048.56
1092.63 * 1961.05
= - 0.16
This shows that there is weak negative relation between export and import so as when one increases the other decreases but not that much dependent.