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Foreign trade in India includes all imports and exports to and from India. At the level

of Central Government it is administered by the Ministry of Commerce and Industry. As

of 2014, India stood 19th among the leadin1991 economic reform

Prior to the 1991 economic liberalisation, India was a closed economy due to the average tariffs

exceeding 200 percent and the extensive quantitative restrictions on imports. Foreign investment

was strictly restricted to only allow Indian ownership of businesses. Since the liberalisation,

India's economy has improved mainly due to increased foreign trade.

g exporters in the world with merchandise exports worth $3.42 trillion

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https://en.wikipedia.org/wiki/Ministry_of_Commerce_and_Industry_(India)

https://en.wikipedia.org/wiki/Government_of_India

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Trends in India's Foreign Trade

India’s Trade Performance

India’s merchandise exports reached a level of US $ 251.14 billion during 2010-11

registering a growth of 40.49 percent as compared to a negative growth of 3.53 percent

during the previous year. India’s export sector has exhibited remarkable resilience and

dynamism in the recent years. Despite the recent setback faced by India’s export sector

due to global slowdown, merchandise exports recorded a Compound Annual Growth

Rate (CAGR) of 20.0 per cent from 2004-05 to 2010-11.

World Trade Scenario

As per IMF’s World Economic Outlook October, 2011, world trade recorded its largest

ever annual increase in 2010, as merchandise exports surged 14.4 per cent. The volume

of world trade (goods and services) in 2011 is expected to slow down to 7.5 per cent

compared to the 12.8 per cent achieved in 2010. Growth in the volume of world trade

is expected to decline in 2012 to 5.8 per cent as per IMF projections.

The IMF has moderated its growth projections of world output to 4 per cent in 2012.

The advanced economies are expected to grow at 1.9 per cent in 2012 while the

emerging and developing economies to grow at 6.1 per cent. The projected growth

rates in different countries are expected to determine the markets for our exports.

As per WTO’s International Trade Statistics, 2010, in merchandise trade, India is the

20th largest exporter in the world with a share of 1.4 per cent and the 13th largest

importer with a share of 2.1 per cent in 2010.

The year 2011 has been a difficult year with Japan facing a major earthquake and

tsunami, the swelling of unrest in the Middle East oil producing countries, the slowing

down of US economy and the Euro area facing major financial turbulence. The current

global economic slowdown has its epicenter in the Euro-region but the contagion is

being witnessed in all major economies of the world. As a result, India’s short-term

growth prospects have also been impacted.

Exports

Exports recorded a growth of 40.49 per cent during April-March 2010-11. The

Government has set an export target of US $ 300 billion for 2011-12. With

merchandise exports reaching US $ 217.66 billion in 2011-12(Apr-Dec), the export

target of 300 US $ billion is expected to be achieved. Export target and achievement

1. Negative or Unfavourable Trade:

India had to import various items like heavy machinery, agricultural implements, mineral oil and

metals on a large scale after Independence for economic growth.

But our exports could not keep pace with our imports which left us with negative or

unfavourable trade.

2. Diversity in Exports:

Previously, India used to export its traditional commodities only which included tea, jute,

cotton textile, leather, etc. But great diversity has been observed in India’s export commodities

during the last few years. India now exports over 7,500 commodities. Since 1991, India has

emerged as a major exporter of computer software and that too to some of the advanced

countries like the USA and Japa3. Worldwide Trade:

India had trade links with Britain and a few selected countries only before Independence. But

now India has trade links with almost all the regions of the world. India exports its goods to as

many as 190 countries and imports from 140 countries.

4. Change in Imports:

Earlier we used to import food-grains and manufactured goods only. But now oil is the largest

single commodity imported by India. Both the imports as well as exports of pearls and precious

stones have increased considerably during the last few years. Our other important commodities

of import are iron and steel, fertilizers, edible oils and paper.

5. Maritime Trade:

About 95 per cent of our foreign trade is done through sea routes. Trade through land routes is

possible with neighbouring countries only. But unfortunately, all our neighbouring countries

including China, Nepal, and Myanmar are cut off from India by lofty mountain ranges which

makes trade by land routes rather difficult. We can have easy access through land routes with

Pakistan only but the trade suffered heavily due to political differences between the two

countries.

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6. Trade through a few Selected Ports Only:

We have only 12 major ports along the coast of India which handle about 90 per cent overseas

trade of India. Very small amount of foreign trade is handled by the remaining medium and

small ports.

7. Insignificant Place of India in the World Overseas Trade:

Although India has about 16 per cent of the world’s population, her share in the world overseas

trade is less than one per cent. This shows the insignificant place of India in the world’s overseas

trade. This is, however, partly due to very large internal trade, vast dimensions of the country

provide a solid base for inter-state trade within the country. Europe is divided into a large

number of smaller countries and the international trade is quite high (trade counted twice, first

time as exports and second times as imports).

8. State Trading:

Most of India’s overseas trade is done in public sector by state agencies and very little trade is

done by individuals.

Main Advantages and Disadvantages of Foreign Trade in India are described below:

Advantages:

1. Optimal use of natural resources:

Foreign trade helps each country to make optimum use of its natural resources. Each country can

concentrate on production of those goods for which its resources are best suited. Wastage of

resources is avoided.

2. Availability of all type of goods:

It enables a country to obtain goods, which it cannot produce or which it is not producing due to

higher costs, by importing from other countries at lower costs.

3. Specialisation:

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Foreign trade leads to specialization and encourages production of different good in different

countries. Goods can be produced at comparatively low cost due to advantages of division of

labour.

4. Advantages of large-scale production:

Due to foreign trade, goods are produced not only for home consumption but for exports to other

countries also. Nations of the world can dispose of goods which they have in surplus in the

foreign markets. This leads to production at large- scale and the advantages of large-scale

production can be obtained by all the countries of the world.

5. Stability in prices:

Foreign trade irons out wild, fluctuations in prices. It equalizes the prices of goods throughout

the world (ignoring cost of transportation etc.).

6. Exchange of technical know-how and establishment of new industries:

Underdeveloped countries can establish and develop new industries with the machinery

equipment and technical know-how imported from developed countries. This helps in the

development of these countries and the economy of the world at large.

7. Increase in efficiency:

Due to the foreign competition the producers in a country attempt to produce better quality of

goods and at the minimum possible cost. This increases the efficiency and benefits the

consumers all over the world.

8. Development of the means of transport and communications:

Foreign trade requires the best means of transport and communication. For the advantages of

foreign trade development in the means of transport and communication is also made possible.

9. International co-operation and understanding:

The people of different countries come in contact with each other. Commercial intercourse

amongst nations of the world encourages exchange of ideas and culture. It creates co-operation,

understanding and cordial relations amongst various nations.

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10. Ability to face natural calamities:

Natural calamities such as drought, floods, famine, earthquake etc., affect the production of a

country adversely. Deficiency in the supply of goods at the times of such natural calamities can

be met by imports from other countries.

11. Other advantages:

Foreign trade helps in many other ways such as benefits to consumers, international peace and

better standard of living.

Disadvantages:

The important disadvantages of foreign trade that you might not know are listed below:

1. Impediment in the Development of Home Industries:

Foreign trade has an adverse effect on the development of home industries. It poses a threat to

the survival of infant industries at home.

Due to foreign competition and unrestricted imports the upcoming industries in the country may

collapse.

2. Economic Dependence:

The underdeveloped countries have to depend upon the developed ones for their economic

development. Such reliance often-leads to economic exploitation. For, instance most of the

underdeveloped countries in Africa and Asia have been exploited by European countries.

3. Political Dependence:

Foreign trade often encourages subjugation and slavery. It impairs economic independence

which endangers political dependence. For example, the Britishers came to India as traders and

ultimately ruled over India for a very long time.

4. Mis-utilisation of Natural resources:

Excessive exports may exhaust the natural resources of a country in a shorter span of time than it

would have been otherwise. This will cause economic downfall of the country in the long run.

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5. Import of Harmful Goods:

Import of spurious drugs, Luxury articles, etc. adversely affects the economy and well being of

the people.

6. Storage of Goods:

Sometimes the essential commodities required in a country and in short supply are also exported

to earn foreign exchange. This results in shortage of these goods at home and cause inflation. For

example, India has been exporting sugar to earn foreign exchange; hence the exalting prices of

sugar in the country.

7. Danger to Internal Peace:

Foreign trade gives an opportunity to foreign agents to settle down in the country which

ultimately endangers its internal peace.

8. World Wars:

Foreign trade breeds rivalries amongst nations due to competition in the foreign markets. This

may event fully lead to wars and disturbs world peace.

9. Hardships in times of wars:

Foreign trade promotes lopsided development of a country as only those goods which have

comparative cost advantage are produced in a country. During wars or when good relations do

not prevail between nations, many hardships may follow.

Some of the objectives of foreign trade policy of India are as follows:

Trade propels economic growth and national development. The primary purpose is not the mere

earning of foreign exchange, but the stimulation of greater economic activity. The foreign trade

policy of India is based on two major objectives, they are as follows:

1) To double the 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.

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Agriculture and industry has shown remarkable resilience and dynamism in contributing to a

healthy growth in exports. In the last five years the exports witnessed robust growth to reach a

level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. Our share of global

merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. Our share

of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s total

share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the

employment front, studies have suggested that nearly 14 million jobs were created directly or

indirectly as a result of augmented exports in the last five years.

The short term objective of the policy is to arrest and reverse the declining trend of exports and

to provide additional support especially to those sectors which have been hit badly by recession

in the developed world. The policy is empowered with objective of achieving an annual export

growth of 15% with an annual export target of US$ 200 billion by March 2011. In the remaining

three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back

on the high export growth path of around 25% per annum. By 2014, policy expects to double

India’s exports of goods and services.

The long term objective of policy for the Government is to double India’s share in global trade

by 2020. In order to meet these objectives, the Government would follow a mix of policy

measures including fiscal incentives, institutional changes, procedural rationalization, and

enhanced market access across the world and diversification of export markets. Improvement in

infrastructure related to exports; bringing down transaction costs, and providing full refund of all

indirect taxes and levies, would be the three pillars, which will support us to achieve this target.

Endeavour will be made to see that the Goods and Services Tax rebates all indirect taxes and

levies on exports.

Global Scenario

In 2014, the world crude steel production reached 1665 million tonnes (mt) and showed a

growth of 1% over 2013.

China remained the world’s largest crude steel producer in 2014 (823 mt) followed by Japan

(110.7 mt), the USA (88.2 mt) and India (86.5 mt) at the 4 th position.

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WSA has projected Indian steel demand to grow by 6.2% in 2015 and by 7.3% in 2016 as

compared to global steel use growth of 0.5% and 1.4% respectively. Chinese steel use is

projected to decline in both these years by 0.5%.

Per capita finished steel consumption in 2014 is estimated at 217 kg for world and 510 kg for

China by WSA.

(Note: 2014 data source is provisional and sourced from ‘World Steel in Figures 2015’,

published by WSA in June 2015)

Domestic Scenario

The Indian steel industry has entered into a new development stage from 2007-08, riding high

on the resurgent economy and rising demand for steel.

Rapid rise in production has resulted in India becoming the 3 rd largest producer of crude

steel in 2015 and the country continues to be the largest producer of sponge iron or DRI in the

world.

As per the report of the Working Group on Steel for the 12 th Five Year Plan, there exist

many factors which carry the potential of raising the per capita steel consumption in the

country. These include among others, an estimated infrastructure investment of nearly a

trillion dollars, a projected growth of manufacturing from current 8% to 11-12%, increase in

urban population to 600 million by 2030 from the current level of 400 million, emergence of

the rural market for steel currently consuming around 10 kg per annum buoyed by projects

like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Awaas Yojana among

others.

At the time of its release, the National Steel Policy 2005 had envisaged steel production to

reach 110 million tonnes (mt) by 2019-20. However, based on the assessment of the current

ongoing projects, both in greenfield and brownfield, the Working Group on Steel for the 12 th

Five Year Plan has projected that domestic crude steel capacity in the county is likely to be

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140 mt by 2016-17 and has the potential to reach 149 mt if all requirements are adequately

met.

The National Steel Policy 2005 is currently being reviewed keeping in mind the rapid

developments in the domestic steel industry (both on the supply and demand sides) as well as

the stable growth of the Indian economy since the release of the Policy in 2005.

Production

Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively.

Today, India is the 3 rd largest producer of crude steel in the world.

In 2014-15, production for sale of total finished steel (alloy + non alloy) was 91.46 mt, a

growth of 4.3% over 2013-14.

Production for sale of Pig Iron in 2014-15 was 9.7 mt, a growth of 22% over 2013-14.

India is the largest producer of sponge iron in the world with the coal based route accounting

for 90% of total sponge iron production in the country.

Data on production for sale of pig iron, sponge iron and total finished steel (alloy + non-alloy)

are given below for last five years:

Indian steel industry : Production for Sale (in million tonnes)

Category 2010-11 2011-12 2012-

13

2013-14 2014-15

Pig Iron 5.68 5.371 6.870 7.950 9.694

Sponge Iron 25.08 19.63 14.33 18.20 20.38

Total Finished Steel (alloy + non alloy) 68.62 75.70 81.68 87.67 91.46

Source: Joint Plant Committee

Demand - Availability Projection

Demand – availability of iron and steel in the country is projected by Ministry of Steel in its

Five Yearly Plan documents.

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Gaps in availability are met mostly through imports.

Interface with consumers by way of a Steel Consumers’ Council exists, which is conducted on

regular basis.

Interface helps in redressing availability problems, complaints related to quality.

Steel Prices

Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are

determined by the interplay of market forces.

Domestic steel prices are influenced by trends in raw material prices, demand – supply

conditions in the market, international price trends among others.

An Inter-Ministerial Group (IMG) is functioning in the Ministry of Steel, under the

Chairmanship of Secretary (Steel) to monitor and coordinate major steel investments in the

country.

As a facilitator, the Government monitors the steel market conditions and adopts fiscal and

other policy measures based on its assessment. Currently, basic excise duty for steel is set at

12.5% and there is no export duty on steel items. The government has also imposed export

duty of 30% on all forms of iron ore except low grades which carry a duty of 10% while iron

ore pellets have a export duty of 5% in order to control ad-hoc exports of the items and

conserve them for long term requirement of the domestic steel industry. It has also raised

import duty on most steel imports by 2.5%, taking the import duty on carbon steel flat

products to 10% and that on long products to 7.5%.

For ensuring quality of steel several items have been brought under a quality control order

issued by the Government.

Further, a Steel Price Monitoring Committee has been constituted by the Government with the

aim to monitor price rationalization, analyze price fluctuations and advise all concerned

regarding any irrational price behaviour of steel commodity.

Imports

Iron & steel are freely importable as per the extant policy.

Data on import of total finished steel (alloy + non alloy) is given below for last five years:

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Indian steel industry : Imports (in million tonnes)

Category 2010-11 2011-12 2012-

13

2013-14 2014-15



Exports

Iron & steel are freely exportable.

Data on export of total finished steel (alloy + non alloy) is given below for last five years:

Indian steel industry : Exports (in million tonnes)

Category 2010-11 2011-12 2012-

13

2013-14 2014-15



Levies on Iron & Steel

SDF levy

This was a levy started for funding modernisation, expansion and development of steel sector.

The Fund, inter-alia, supports :

Capital expenditure for modernisation, rehabilitation, diversification, renewal &

replacement of Integrated Steel Plants.

Research & Development

Rebates to SSI Corporations

Expenditure on ERU of JPC

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The SDF levy was abolished on 21.4.94

Cabinet decided that corpus could be recycled for loans to Main Producers

Interest on loans to Main Producers is set aside for promotion of R&D on steel etc.

An Empowered Committee has been set up to guide the R&D effort in this sector.

EGEAF – Was a levy started for reimbursing the price differential cost of inputs used for

engineering exporters. Fund was discontinued on 19.2.96.

Opportunities for growth of Iron and Steel in Private Sector

The New Industrial Policy Regime

The New Industrial policy opened up the Indian iron and steel industry for

private investment by (a) removing it from the list of industries reserved for public sector and

(b) exempting it from compulsory licensing. Imports of foreign technology as well as foreign

direct investment are now freely permitted up to certain limits under an automatic route. Ministry

of Steel plays the role of a facilitator, providing broad directions and assistance to new and

existing steel plants, in the liberalized scenario.

The Growth Profile

(i) Steel : The liberalization of industrial policy and other initiatives taken by the Government

have given a definite impetus for entry, participation and growth of the private sector in the steel

industry. While the existing units are being modernized/expanded, a large number of new steel

plants have also come up in different parts of the country based on modern, cost effective, state

of-the-art technologies. In the last few years, the rapid and stable growth of the demand side has

also prompted domestic entrepreneurs to set up fresh greenfield projects in different states of the

country.

Crude steel capacity was 109.85 mt in 2014-15 and India, which emerged as the 3 rd largest

producer of crude steel in the world in 2015 as per ranking released by the WSA, has to its

credit, the capability to produce a variety of grades and that too, of international quality

standards. The country is expected to become the 2 nd largest producer of crude steel in the

world soon, provided all requirements for creation of fresh capacity are adequately met.

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(ii) Pig Iron: India is also an important producer of pig iron. Post-liberalization, with setting up

several units in the private sector, not only imports have drastically reduced but also India has

turned out to be a net exporter of pig iron. The private sector accounted for 91% of total

production for sale of pig iron in the country in 2014-15. The production for sale of pig iron has

increased from 1.6 mt in 1991-92 to 9.7 mt in 2014-15.

(iii) Sponge Iron: India is the world’s largest producer of sponge iron with a host of coal based

units, located in the mineral-rich states of the country. Over the years, the coal based route has

emerged as a key contributor and accounted for 90% of total sponge iron production in the

country. Capacity in sponge iron making too has increased over the years and stood at 46.23 mt

in 2014-15.

Some of the major Iron and Steel Plants of India are as follows:

1. Tata Iron and Steel Company (TISCO):

This is the oldest iron and steel centre of India. It is a private sector enterprise. It was established

in 1907 by Jamshedji Tata at Sakchi in Singhbhum district of Jharkhand. Later on, it was

renamed as Jamshedpur after Jamshedji. It started producing pig iron in 1911 and steel in 1912.

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The plant initially had capacity of producing 1.21 million tonnes of pig iron and 1.1 million

tonnes of steel per annum. This capacity has been enhanced to 3.9 million tonnes of pig iron, 2

million tonnes of ingot steel and 3 million tonnes of saleable steel. Currently it produces about 3

million tonnes of saleable steel. Following facilities are available to this centre:

(i) High grade haematite iron ore is available from Noamundi mines of Singhbhum in Jharkhand

and Gurumahisani mines of Mayurbhanj in Orissa. These mines are located at a distance of 75-

100 km from Jamshedpur.

(ii) Coal is available from Jharia and Raniganj coal mines located 160 to 200 km from

Jamshedpur.

(iii) Manganese comes from Joda mines of Kendujhar district in Orissa.

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(iv) Dolomite, limestone and fire clay used as flux material are available from Sundargarh

district of Orissa.

(v) Kolkata, located at a distance of 250 km, provides port facilities and its industrialised

hinderland provides market for the products.

(vi) Sufficient water for cooling purposes is obtained from Subamrekha River. In addition to this,

the storage dam on Kharkai River also provides water.

(vii) Jamshedpur is well connected with Kolkata, Mumbai and Chennai by road and rail and

enjoys good transport facilities.

(viii) Densely populated regions of Jharkhand, Bihar and Orissa provide cheap labour. Major

part of labour is drawn from tribal areas of Chota Nagpur plateau.

2. Indian Iron and Steel Company (IISCO):

Three plants at Kulti, Hirapur and Bumpur in West Bengal were set up in 1864, 1908 and 1937

respectively. These plants have been merged together and are known as Indian Iron and Steel

Company (IISCO).

It was brought under government control and management in July 1972. The three plants are

linked by Kolkata-Asansol railway line. Hirapur plant produces pig iron which is sent to Kulti

for making steel. The rolling mills are located at Bumpur. IISCO enjoys the following

advantages:

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(ii) It used to receive coal from Jharia, located at a distance of 137 km but now the power from

the Damodar Valley Corporation is extensively used.

(iii) Dolomite and limestone are obtained from Sundargarh district of Orissa which is 327 km

away. Limestone is also available from Gangpur and Paraghat areas of Orissa.

(iv) Rail and road links connect it to Kolkata which is just 200 km away.

(v) Cheap labour is readily available from the neighbouring areas.

IISCO has annual capacity of producing 10 lakh tonnes of steel. Currently it produces over 4

lakh tonnes of pig iron, more than 3.5 lakh tonnes of crude steel and around 3.8 lakh tonnes of

saleable steel.

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