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

Foreign Trade Policy, 2004–2009 Notes
For India to become a major player in world trade, a comprehensive view is necessary. While increase
in exports is of vital importance, we have also to facilitate those imports which are required to stimulate
our economy. Thus, independent of the annual EXIM Policy, it is necessary to take an overall view of
India’s foreign trade. This is the context of the new Foreign Trade Policy.
The objectives of the new policy are :
(1) To double our percentage share of global merchandise trade within the next five years.
(2) To act as an effective instrument of economic growth by giving a thrust to employment
generation.
These objectives are proposed to be achieved by adopting, among others, the following strategies:
(i) Unshackling of controls and enabling the innate entrepreneurship of our businessmen,
industrialists and traders.
(ii) Simplifying procedures and bringing down transaction costs.
(iii) Neutralizing incidence of all levies and duties on inputs used in export products, based on the
fundamental principle that duties and levies should not be exported.
(iv) Facilitating development of India as a global hub for manufacturing, trading and services.
(v) Identifying and nurturing special focus areas which would generate employment opportunities,
particularly in semi urban and rural areas, and developing a series of ‘Initiatives’ for each of
these.
(vi) Facilitating technological and infrastructural up gradation of all the sectors of the Indian
economy, especially through import of capital goods and equipment, thereby increasing value
addition and productivity, while attaining internationally accepted standards of quality.
(vii) Avoiding inverted duty structures and ensuring that our domestic sectors are not disadvantaged
in the Free Trade Agreements/Regional Trade Agreements/Preferential Trade Agreements
that we enter into in order to enhance our exports.
(viii) Upgrading our infrastructural network, both physical and virtual, related to the entire Foreign
Trade chain, to international standards.
(ix) Revitalizing the Board of Trade by redefining its role, giving it due recognition and inducting
experts on Trade Policy.
(x) Activating our Embassies as key players in our export strategy and linking our Commercial
Wings abroad through an electronic platform for real time trade intelligence and enquiry
dissemination.
FTP, 2004–2009 envisions a pervasive set of strategies involving different sectors of the economy.
Many of these are also integral to our policies of national economic development. It is to be hoped,
therefore, that the new FTP will be seriously translated into actual strategic performance in order to
optimise our international trade, and that too much to our own advantage.
22.2 Balance of Payments

We have had decades of atrophied balance of payments in our exchange accounts, interlaced with
years or periods of revival. That is all a story now. However, our foreign exchange account has
become strong, in the trail of the continuing phases of economic reforms.
There has been a current account surplus for three successive years. This has, coupled with an
expanding capital account, further strengthened India’s balance of payments account in 2003–04.
The year witnessed accumulation of reserves of US $ 31.4 billion (excluding valuation changes, gold,
SDRs and Reserve Tranche at the IMF).
Nearly a third of the reserves were contributed by the surplus in current account (Table 5). Rising
surpluses in the current account have been one of the distinguishing features of India’s balance of
payments in the current decade.

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