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Indian Economy

Notes Foreign trade raises the possibility of market as of domestic demand and foreign demand
for the product. So there is mass fabrication. If the manufacture of goods rises, average cost
drops and price of goods drops.
Foreign trade benefits the people to get dissimilar ranges of things both in extents terms
and qualitative terms.

Foreign trade supports an unindustrialized country like India in its financial development.
Iron and steel industry, has been formed due to stored iron-ore and coal. But for the
formation of this type manufacturing, we have to import technical understanding from
foreign countries. Had there been no foreign trade, then it would not have been only
problematic but also too costly.
Without foreign trade, it is not possible to fulfil the request for petroleum products and it will
retard the economic development of our country. There is also shortage of consumer goods due
to usual disasters or due to any other reason. During the time of shortage of consumer goods, we
import these goods from foreign countries and keep prices steady which support people to get
their supplies.

8.1 Foreign Trade

Now let us begin the unit with the meaning and types of foreign trade. Foreign trade is nothing
but trade between the different countries of the world. It is also called as International trade,
External trade or Inter-Regional trade. It consists of imports, exports and entrepot. The inflow of
goods in a country is known as import trade whereas outflow of goods from a country is known
as export trade. Many times goods are imported for the purpose of re-export after some processing
operations. This is called entrepot trade. Foreign trade basically takes place for mutual satisfaction
of wants and utilities of resources.

8.1.1 Three Types of Foreign Trade

Foreign Trade can be divided into following three groups:

1. Entrepot Trade: Entrepot trade can be named as Re-export. It mentions the acquisition of
goods from one state and then selling them to another state after some giving out processes.
2. Export Trade: Export trade is related to the sale of goods by one nation state to another
nation state or outflow of goods from home country to foreign country.
3. Import Trade: Import trade can be defined as the procurement of goods by one state from
another state or inflow of goods and services from distant country to home country.
8.2 Need and Importance of Foreign Trade

In this section, you will learn about the need and importance of foreign trade. The below points
clarify the need and significance of foreign trade to a nation:

1. Division of Labour and Specialisation: Foreign trade leads to division of labour and
specialisation at the world level. Some countries have plentiful natural wealth. They
should distribute raw materials and import finished goods from republics which are
progressive in skilled manpower. This gives profits to all the states and thus leading to
separation of labour and specialisation.
2. Optimum Allocation and Utilisation of Resources: Due to specialisation, uncreative lines
can be removed and waste of resources sidestepped. In other words, resources are

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