Page 290 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy
Pavitar Parkash Singh, Lovely Professional University

Notes Unit 22: Sectoral Performance III - Foreign Trade and
Balance of Payments

CONTENTS
Objective
Introduction
22.1 Foreign Trade
22.2 Balance of Payments
22.3 Summary
22.4 Key-Words
22.5 Review Questions
22.6 Further Readings

Objectives

After reading this Unit students will be able to:
• Explain the Foreign Trade.
• Describe about the Balance of Payments.
Introduction

In the age of globalisation, interdependence between the economies of the world has increased many
times. Thus, the external sector in the Indian economy has gained prime importance. It may be noted
that both exports and imports contribute to the production process. They can be used in raising the
income levels of the people in a developing economy. In addition to flow of goods, increasing flow of
services and capital between the nations give rise to payments and receipts in foreign exchange. This,
in turn, has an impact on the Balance of Payment’s position for a country. Foreign trade and Balance
of Payments, trade policy and various policy measures for rapid growth of exports may help in the
economic growth of the country.
22.1 Foreign Trade

It is generally agreed that the status of a country’s economy depends in some measure upon the
character of its commercial dealings with other countries. India cannot afford to remain insular in
international trade and commerce. Imports and exports are vital for economic growth. In this context,
international trade, balance of payments and international monetary system are important. We have
discussed the first-two issues in this Section, and covered the third in Section 16.
Foreign/Before Independence
India has had from ancient times a flourishing world trade, particularly with the Mediterranean, the
Far East and the Levant. Geographically, India was ideally located for this purpose ‘in the centre of
the world.’ But internecine political uncertainties and serious maritime anarchies became two principal
deterrents to this trade’s further development during the Muslim period.
With the entrenchment of the British rule, the situation largely changed. Two catalytic factors were :
(1) the opening of the British countryside by the proliferation of rail, road and inland shipping
networks; and (2) the establishment of a shorter route to Great Britain and Europe via the Suez Canal.
In consequence, India’s foreign trade substantially expanded in the second half of the nineteenth
century. Between 1860 and 1900 the value of India’s foreign trade went up nearly three-fold. Between
1900 and 1940 there was a further doubling of the value of trade.

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