Emerging Trends in India s Foreign Trade Under the Globalised Regime Dr. Irfan Ahmad Lecturer Department of Commerce Aligarh Muslim University, Aligarh-202002 (U.P.) According to IMF, Globalisation may be defined as the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of capital inflow and also through the more rapid and wide spread diffusion of technology. The world economy has been emerging as a global or transnational economy. A global economy is one which transcends the national borders unhindered by artificial restrictions like government restrictions on trade and factor movements. Globalisation is a process of development of the world into a single integrated economic unit. 1 This process is a move towards a borderless regime of free trade based on competition. The globalisation has four parameters, that is, (i) Reduction of trade barriers so as to permit free flow of goods and services across national frontiers. (ii) Creation of an environment in which free flow of capital can take place. (iii) Creation of environment, permitting free flow of technology, and (iv) Creation of an environment in which free movement of labour can take place in different countries of the world. Today, globalisation is characterized by new emerging markets, new technologies, new rules and norms. It is a way of corporate life necessitated, facilitated and nourished by the transnationalisation of the world economy and developed by corporate strategies. Globalisation is a new mind set and value system which has integrated the entire world as a single market. It does not differentiate between domestic market and foreign market. There is nothing
2 like a home market and international market but there is only one market, i.e., the global market. To become globally competitive, the Indian industries have to face the challenges posed by globalisation such as improvement in quality, technology, brand marketing, multinational corporations, inventory management, resource utilization, finance mix, foreign collaborations and exports, fuller capacity utilization of human resource. The Indian industry has to concentrate on cost and quality. 2 The business environment, particularly the economic and political environment, has been changing fast all over the world. In India, during the Narasimha Rao regime, the global environment of our country took a new shape. With the collapse of the USSR, India was forced to reorient its foreign policy. Domestically, India initiated the phase of structural reforms in the form of liberalisation, privatisation and globalisation. This brought India for the first time, to lay focus on economic diplomacy. During the first four decades after independence Indian government laid emphasis on acquiring national self-sufficiency by adopting import substitution industrialization. That policy of inward looking adversely affected the GDP growth rate and made Indian industry cost inefficient as well as weak in international competitiveness. In India, the process of globalisation of trade started in 1980s but it got momentum after the introduction of economic reforms in 1991. The measures of trade liberalization resulting from the introduction of economic reforms which aimed at making domestic industry cost efficient by enhancing resources utilization under international competition, were expected to achieve a better export performance in the long run. The major policy changes in the post-1991 period included the simplification of procedures by removal of Quantitative
3 Restrictions and substantial reduction in the tariff rates. This included export promotion schemes to a large number of non-traditional and nonmanufacturing areas. In the subsequent announcement of Export-Import policies, various structural changes were effected such as the removal of quantity restrictions on 69 import items and 5 export items, strengthening the export production base, removal of procedural bottlenecks, technological upgradation, improvement of product quality and the provision of direct exports subsidies. Besides, various other steps were also undertaken to promote export through multilateral and bilateral initiatives. 3 Trends in India s Foreign Trade since Independence During the pre-independence period, foreign trade of India suffered a serious setback under the colonial rule when India s status was reduced to being a cheap and an assured source of supply of raw materials for the manufacturing industries of Britain. India was treated as a captive market for manufactured and processed goods produced in Britain. But after independence, Indian foreign trade made cumulative progress both qualitatively and quantitatively. Though the size of Indian foreign trade and its value both have increased during post independence period, the increase in foreign trade cannot be said satisfactory because Indian share in total world trade has remained remarkably low. It has rather decreased over the years. In 1950, the Indian share in the total world trade was 1.78% which came down to 0.6% has been continuing since then which clearly indicates that India has failed to increase its share in the total world trade. However, India s trade links with all the countries of the world have increased over the years. Under the new regime of globalisation, India has taken major initiatives to diversify its exports. Indian exports cover over 7,500 commodities distributed over 190 countries while imports cover over 6,000
4 commodities from 140 countries. 4 The following table indicates the volume of Indian foreign trade in post-independence era. Table 1 Showing India s Foreign Trade during 1950-51 to 2002-03 (Rs. in crores) Year Import Export Trade Deficit 1950-51 608 606 2 1960-61 1122 (84.53) 1970-71 1634 (44.56) 1980-81 12549 (667.99) 1990-91 43198 (244.23) 1996-97 138920 (221.59) 1997-98 154176 (10.98) 1998-99 178332 (15.66) 1999-2000 215236 (20.69) 2000-2001 230873 (7.26) 2001-2002 245199 (6.21) 642 (5.94) 1535 (139.09) 6711 (337.19) 32553 (385.06) 118817 (264.99) 130101 (9.49) 139753 (7.42) 159561 (14.17) 203571 (27.58) 209018 (2.67) 480 (23900) 99 (-79.37) 5838 (5796.96) 10645 (82.34) 20103 (88.85) 24075 (19.76) 38579 (60.24) 55675 (44.23) 27302 (-50.96) 36181 (32.52) 2002-2003 (April-Dec.) 213225 185211 28014 Source : The Indian Economic Survey, Ministry of Finance, Govt. of India, New Delhi, 2002-03, p. S-78. Note : Figures within brackets indicate changes over previous decade upto 1990-91 and over previous year thereafter. 5
5 It is deplorable that during the whole planning period, the overall position of India s trade has remained unfavourable. Our imports have exceeded exports, showing a trade deficit. Only two financial years i.e., 1972-73 and 1976-77 were exceptional in showing favourable balance of trade worth Rs. 104 crore and Rs. 68 crore respectively. The deficit in balance of trade in our country has been generally increasing, even though our foreign trade has been getting much more broad based. The Government has introduced a number of measures for reducing deficit in the balance of trade. The main objective was to control imports on the one hand and to promote exports on the other. The basic reason of increasing deficit in balance of trade in India has been the high import bill of petroleum products. Devaluation of rupee in 1991, and the convertibility of Indian rupee on trade account and current account during 1993-94 and 1994-95 respectively improved the balance of trade position in 1993-94. But the deficit again increased during the subsequent years. India s balance of payments in 2001-2002 exhibited mixed developments. While exports, on BOP basis, remained stagnant at previous year s level, imports declined by 2.8 per cent, resulting in a decline in merchandise trade deficit, as percent of GDP, from 3.1 per cent in 2000-01 to 2.6 per cent in 2001-02. New Exim Policy of India (2001-02) seeks to give an impact to agricultural exports in the context of the current WTO negotiations on integrating agriculture into the multilateral trading system. India has tremendous potential for export not only of foodgrains but also of fruits and vegetables and other processed foods. At present, agricultural products make up 18 to 20 percent of total exports. However, the Union Govt. on May 22 fixed an export growth target of 12 percent for the current financial year which
6 means that exports are projected to rise to $57.8 billion at the end of 2003-04 as against $51.7 billion during 2002-03. The target indicates $ 6 billion in merchandise exports. In rupee terms this would be around Rs. 2,73,636 crore in 2003-04 compared to Rs. 2,50,130 crore in 2002-03. Recently India has been ranked by the WTO as the 30 th largest exporter. On the imports side, the average growth rate of imports rose from 7.2 per cent in 1981-1991 to 12.9 per cent in 1991-2000. In 2001-02 it stood at 10.8 per cent India has been ranked by the WTO as the 24 th largest importer with merchandise imports of $ 56.3 billion during 2002. It has been ranked 27 th in terms of service imports with a share of 1 percent in global imports. The EXIM policy for the period 2002-07 was announced on 31 st March, 2002. This policy, for the next five years, seeks to consolidate the gains of the preivous Export-Import Policies and has set, for itself, a challenging target to achieve 1% share in global trade by 2007. The basic principle of the New Policy is to continue the process of liberalization, simplification of procedures, reduction of transaction cost to our exporters and importers and finally focusing on areas of country s core competence like agriculture, leather, textile and the small scale sector, including cottage and handicrafts sectors. 6 Issues and Challenges The era of globalisation offers both challenges as well as opportunities to the developing countries like India. Increased trade, new technologies, foreign investments, expanding media and internet connections are fuelling economic growth and human advance. All these offer enormous potential to eradicate poverty in the 21 st century. Today s globalisation is being driven by market expansion. More progress has been made in norms, standards, policies and institutions for open global markets than for people and their rights.
7 Competitive markets may be the best guarantee of efficiency but not necessarily of equality. 7 The challenge of globalisation in the new century is not to stop the expansion of global markets but one of setting rules and institutions for stronger governance to protect the advantages of global markets and competition, but also to provide enough space for other areas to ensure that globalisation works for people but not just for profit. To succeed in global markets Indian producers have to take some measures like higher productivity growth, better quality products and innovation in products and different types of technology. Companies have different types of technology and enter into strategic alliance to reduce cost and for bringing up technology. Another milestone of globalisation, is a greater inflow of foreign investment which increases the productive capacity of the economy. Foreign investment takes two forms foreign direct investment (FDI) and foreign portfolio investment. FDI helps to increase productive capacity, while foreign portfolio investment is of more speculatic nature and is, thus, very volatile. After a series of ups and downs the proportion of FDI in total investment improved to 53 per cent. This is a welcome development. But, the share of portfolio investment is still high at about 47 per cent. In the context of foreign investment India has not benefited from FDI to the extent to which the country was expecting. From the above discussion it can be said that globalisation did not help India to the same extent as it helped China, Mexico, Indonesia and Malaysia. If we look at the poverty alleviation rate, it can be pointed out that the decade of 1990 s is slightly slower than 1980s. The main reason for the slow decline in
8 poverty is the pattern of growth that was promoted due to liberalization, privatization, and globalisation. Globalisation has effected on income levels with the rich getting richer and the poor becoming poorer. With the objective of pursuing free hands GATT was established in 1948 in Geneva. It provided a useful forum for discussion and negotiations on trade issues. These negotiations were conducted but could not be concluded on account of differences in participating countries on certain critical areas. Due to some unresolved issues a new organization was set up known as WTO on 1 st Jan. 1995 and India became its founder member. Its main function is to ensure that trade flows smoothly and freely. WTO is one of the youngest of international organizations. So far, five ministerial conferences of WTO have been held. The recent Ministerial Conference was held in Cancun at Mexico during Sept. 10-14, 2003, which failed to arrive at any agreement. The Cancun conference was expected to provide a further push to the Doha Round but it could not be achieved and to many critics, the Cancun conference was destined to be a failure. The Cancun talks focused on two key issues-agriculture and investment. India also wanted a special protection mechanism for certain essential commodities and was supported by 20 other countries. India, also discussed trade in services which will allow free movement of its trained manpower in different fields of work but developed countries opposed it. The EU and US wanted to discuss opening up of Government contracts to foreign bidders which will put importers and domestic manufacturers on an equal footing and opening up of financial markets worldwide. This annoyed the developing countries. When the Cancun collapse was announced there was a celebration among the NGOs and anti-globalisation activists. So globalisation
9 again came into spotlight. The failure of Cancun of the World Trade Organisation will be one of the big issues to discuss at Singapore. So after Cancun there are many questions like, should we go ahead with globalisation? Is Cancun a signal that globalisation is coming to a stop? So there is an increasing concern on globalisation which has increased poverty, accentuated both national and international inequalities. There are many socio-economic crises, which include unemployment, declining real wage, debt burden, income disparity, poverty etc. But the most distressing part of the story is the double standards practised by the developed countries. So the globalisation has both positive and negative impact on foreign trade of India. Suggestions : On the basis of emerging business scenario under this globalised regime, the following suggestions may be given : 1. As a matter of fact, today the companies are required to choose a right technology giving due consideration to the cost of the technology, its appropriateness to the market, as well as, the ease of the technology transfer etc. 2. Constant upgradation is required to stay ahead in the race. 3. Certain investment in R & D is required both to develop new products and to make modifications in the existing products, as well as, for investigating the possibilities of producing the same at a lower cost. 4. The organization structure should be less rigid. 5. Companies need to attract talented people and try to retain them by creating a positive work environment with ample opportunities for growth and development and by carefully nurturing human spirits.
10 6. Training is a major factor in developing people for better performance and grooming them for higher responsibilities in future. 7. The key is to identify and retain the key performers by better compensation packages than normal, good career plan, employee stock options, etc. 8. With the growing competition, the companies will have to pay more attention to product differentiation, quality and price to survive in the global competitive market. 9. The variety of product forms available in the market will significantly increase the consumer choice. 10. Licensing, franchising and multi-level marketing will become more popular. 11. Abundant entrepreneurial chances will be provided by the fast growing service sector. 12. People with technical expertise and enterprise will have plentiful opportunities. It is pointed out that, in future, industries would be neither capital intensive nor labour-intensive but skill or enthusiasm intensive. Conclusion To conclude it can be said that the road ahead is full of opportunities and challenges. To survive in future, companies will have to undergo a radical transformation in all their aspects of operating business. They have to apply the strategies and learn how to operate in the new business environment and also an open mind is required to understand and absorb the future emerging changes that are likely to occur and keep adapting accordingly.
11 References 1. Cherunilam, Francis : Business Environment, Himalaya Publishing House, New Delhi, 2002, p. 619. 2. Cherunilam, Francis, op.cit., p. 621. 3. Aswathappa, K. : Essentials of Business Environment, Himalaya Publishing House, New Delhi, 2000, p. 442. 4. Pratiyogita Darpan, Indian Economy (General Studies), M/s Pratiyogita Darpan, Agra, 2003, p. 125. 5. Indian Economic Survey, Ministry of Finance, Government of India, New Delhi, 2002-03, p. S-78. 6. Pratiyogita Darpan, op.cit., p. 130. 7. Dr. Badar Alam Iqb al : WTO and the promotion of the global trade, Chartered Secretary, The Institute of Company Secretaries of India, Vol. XXXII, 2002.