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Role & Importance of Foreign Trade in India - Sector-wise Trends and Issues, Indian Economy | Indian Economy - B Com PDF Download
Introduction of foreign trade:
There is no country in the world today which produces all the commodities it needs. Every country, therefore, tries to produce those commodities in which it has a comparative advantage. It exchanges part of those commodities with the commodities produced by other countries relatively more efficiently. The relative difference in factor endowments, technology, tastes etc, among the nations of the world has greatly widened the basis of international trade.
Role of foreign trade in economic development
The role of foreign trade can be judged by the following faces:
- Foreign trade and economic development: Foreign trade plays a very important role in the economic development of any country. Pakistan also exports a lot of agricultural products to other countries and imports capital goods from other countries. Therefore, it is not wrong to say that the economic development of a country depends on foreign trade.
- Foreign exchange earning: Foreign trade provides foreign exchange which can be used to remove poverty and other productive purposes.
- Market expansion: The demand factor plays a very important role in increasing the production of any country. The foreign trade expands the market and encourages producers. In Pakistan, the home market is very limited due to poverty. So it is necessary to chat we should sell our product in other countries.
- Increase in investment: Foreign trade encourages the investor to increase the investment to produce more goods. So the rate of investment increases.
- Foreign investment: Besides the local investment, foreign trade provides incentives for foreign investors to invest in those countries where there is a shortage of investment.
- Increase in national income: Foreign trade increases the scale of production and national income of the country. To meet the foreign demand we increase the production on a large scale so GNP also increases.
- Decrease in unemployment: With the rise in the demand for goods domestic resources are fully utilized and it increases the rate of development in the country and reduces unemployment in the world.
- Price stability: Foreign trade helps to bring stability to the price level. All those goods which are short and prices are increasing can be imported and those goods which are surplus can be exported. Thereby stopping fluctuation in prices.
- Specialization: There is a difference in the quality and quantity of various factors of production in different countries. Each country adopts the specialization in the production of those commodities, in which it has a comparative advantage. So all trading countries enjoy profit through international trade.
- Remove monopolies: Foreign trade also discourages the monopolies. Where every monopolist increases the prices, the government allows the import of goods to reduce the prices in the country.
- Removal of food shortage: India is also facing the food shortage problem. To remove the food shortage India has imported wheat many times. So due to foreign trade, we are solving this problem for many years.
- Agricultural development: Agricultural development is the backbone of our economy. Foreign trade has played a very important role in the development of our agriculture sector. Every year we export rice, cotton, fruits and vegetables to other countries. The export of goods makes our farmers more prosperous. It inspires the spirit of development in them.
- Import of consumer goods: India and Pakistan import various consumer goods from other countries, which are not produced inside the country. Today the shortage of any commodity can be removed through international trade.
- To improve quality of local products: Foreign trade helps to improve the quality of local products and extends the market through changes in demand and supply as foreign trade can create competition with the rest of the world.
- External economics: External economics can also be achieved through foreign trade. The industries producing foods on large scale in Pakistan and India are enjoying the external economics due to international trade.
- Competition with foreign producers: We can compete with the foreign producers in foreign trade so it improves the quality and reduces the cost of production. It is also an advantage of foreign trade.
- Useful for the world peace: Today all the countries are tied in trade relations with each other. So foreign trade also contribute to peace and prosperity in the world.
- Import of capital goods and technology: The inflow of capital goods and technology in the less developed countries has increased the rate of economic development, and this is due to foreign trade.
- Import substitution: These countries not only produce import substitute, but also reduce the deficit in the balance of payment of their countries.
- Better understanding: Foreign trade provides an opportunity for the people of different countries to meet, discuss, and exchange views and ideas related to their social, economic and political problems.
- Dissemination of knowledge: Foreign trade is also responsible for the dissemination of knowledge and learning from developed countries to underdeveloped countries.
- Interdependence: Foreign trade is responsible for creating economic depending and establishing economic interest in the economy of the countries having trade relations.
- Factors productivity: Through foreign trade the productivity of labour and capital and organization increases. Demand makes them mobile on a national as well as an international level which helps underdeveloped countries to develop and maintain a high level of growth of developed countries.
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| 1. What is the role of foreign trade in India's economy? |  |
Ans. Foreign trade plays a crucial role in India's economy as it contributes significantly to the country's GDP. It helps in integrating the Indian economy with the global market, facilitating the exchange of goods and services between India and other countries. Foreign trade also promotes industrialization, employment generation, and technological advancements in various sectors.
| 2. What are the sector-wise trends in foreign trade in India? | |
Ans. In India, the sector-wise trends in foreign trade vary. Some prominent sectors contributing to foreign trade include textiles, pharmaceuticals, automotive, information technology, and agriculture. These sectors have witnessed both import and export growth, with the IT sector being a major contributor to India's export earnings.
| 3. What are the issues faced by India in foreign trade? | |
Ans. India faces several issues in foreign trade, such as a trade deficit, currency fluctuations, inadequate infrastructure, complex regulations, and non-tariff barriers. The trade deficit occurs when the value of imports exceeds the value of exports, leading to an imbalance in the trade relationship. Currency fluctuations can impact the competitiveness of Indian goods in the global market. Inadequate infrastructure affects the smooth movement of goods, while complex regulations and non-tariff barriers create hurdles for exporters.
| 4. How does foreign trade impact the Indian economy at the sector level? | |
Ans. Foreign trade has a significant impact on the Indian economy at the sector level. It helps sectors like textiles and pharmaceuticals in expanding their market reach by exporting their products to other countries. Export-oriented sectors, such as IT and automotive, contribute to foreign exchange earnings and employment generation. On the other hand, sectors heavily dependent on imports, like oil and gas, may face challenges due to fluctuations in global prices.
| 5. What are the benefits of foreign trade for the Indian economy? | |
Ans. Foreign trade brings several benefits to the Indian economy. It allows access to a wider range of goods and services, promoting consumer choice and well-being. It encourages competition, leading to improved quality and lower prices for consumers. Foreign trade also helps in attracting foreign direct investment (FDI), which brings in capital, technology, and expertise. Additionally, it contributes to economic growth, job creation, and overall development of the country.
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