Foreign trade or international trade refers to the trading of goods between countries. Thus, international trade is an extension of internal trade i.e., trade between two different regions within a country. Just like as single region within a country cannot produce everything it needs by itself, one single economy cannot produce every commodity all by itself. This could be due to differences in the availability of natural resources, skills of people, etc. Therefore, it would be advantageous for a country to indulge in trade with other countries, by exporting those commodities which it produces cheaper in exchange for what others can produce at a lower cost.

Foreign trade also facilitates the dissemination of technical knowledge, transmission of ideas, and import of know-how/skills, managerial talents and entrepreneurship. In addition, foreign trade encourages movement of foreign capital. In totality, foreign trade can have a profound impact on the growth of an economy in terms of production, employment, technology, resource utilization and so on.


India’s foreign trade has grown remarkably, both in terms of value and quantity, since the beginning of economic planning. The policy of industrial and trade liberalization introduced in 1991 has given a new turn to the growth of both imports and exports. However, imports have always exceeded exports which means that India has become a perennially trade deficit country. Another aspect of India’s foreign trade is the fluctuating growth rates of exports and imports.

Imports: India’s imports mainly comprise capital goods like machinery and equipment, raw materials and intermediates like P.O.L. (Petroleum Oil Lubricants), iron and steel, non-ferrous metals, precious stones, etc. The growth rate of imports varied from 21.1 percent in 1952-53 to 58.3 percent in 1973-74. 
On the whole, in the post- Independence period, during the sixties and seventies, import of food items and capital goods contributed to the growth of imports. But since the eighties Petroleum products and capital goods determined the growth trends in the value of imports, to a large extent. Thus, India’s imports are crucial in nature for the functioning of the economy.

Exports: India’s export composition has transformed with the faster growth of manufactured goods and the relative decline of agricultural and allied products. But, manufactured exports are largely confined to light manufactures. The growth rate for exports ranged from as low as – 19.3 percent in 1952-53 to 42.9 percent in 1966-67.

India’s imports as well as exports have also undergone diversification in terms of destination. As a result of all these, the share of foreign trade in India’s Gross National Product (GNP) has been increasing steadily. But it is still lower than that of East Asian and Latin American countries. The share of foreign trade in GNP in India accounted for 17 percent in 1992 whereas it was 54 percent in South Korea, 36 percent in China and 23 percent in Mexico. Further, the share of India’s exports in world exports have been negligible which is the outcome of the lack of competitiveness of Indian goods in the international market. All these show clearly that, despite remarkable growth, India has to go along way in:

  1. Attaining economic self-sufficiency in the form of paying for imports through exports
  2. Improving the competitiveness of its goods in terms of price and quality to increasingly penetrate the world market
  3. Diversification of exports, especially in terms of heavy manufactures
  4. Realising foreign trade as a major sector of the economy in terms of GNP.