Indias Trade Policy

ECONOMIC NOTES

EPW Research Foundation

A Rethink on India’s Foreign Trade Policy

K Kanagasabapathy, Vishakha G Tilak, R Krishnaswamy

lower elasticity of trade to GDP, the trade outlook for the near term is indeed bleak and requires some special attention and strategic policy direction. 2 Direction and Composition Both in terms of direction and composition of commodities, India’s trade still remains highly skewed despite some diversification seen in the last few years. This is reflected in the concentration of trade with a few countries, and in a few commodity groups. This tendency is evident both with respect to exports and imports. This makes India’s trade vulnerable. The trade policy objective of diversification is yet to be achieved. Apart from this, what is also evident is the widening trade imbalance, which is biased towards imports rather than exports. 2.1 Direction of India’s Trade Direction of trade data reveals that India’s trading partners are about 230 countries globally. But, of these, more than 60% of trade volume (in $) is with 23 countries. Among these 23 countries, India depends on only four countries, viz, United Arab Emirates (UAE), China, US and Saudi Arabia, for more than 51% of trade. Such an overdependence makes India’s trade

Table 1: Crude Elasticities of Trade to Real GDP Growth (Average growth rate per annum %)

Period Trade India GDP Crude (Constant 2005 US$) Elasticities@ World India World India World

ver the last decade, India’s foreign trade – exports and imports – has undergone a significant transformation both in terms of composition of commodities and direction. However, foreign trade expanded over the period with dominance of import growth vis-à-vis exports resulting in widening of the negative trade balance. The trade policy announced on 27 August 2009, in the backdrop of the economic crisis, kept the short-term objective of arresting and reversing the declining trend of exports and sought to provide additional support to...