1.

3 INTERNATIONAL ECONOMICS
Q1) The terms of trade for India offer liberalization has more effect on the economy. Which down
the type of term on which it has got more edge and favourable terms and why?
ANSWER :
"Terms of trade" takes a plural form. However, it is a single number that represents the ratio of
the relative prices.
Trade is the transfer of ownership of goods and services from one person or entity to another.
Trade is sometimes loosely called commerce or financial transaction or barter. A network that
allows trade is called a market. The original form of trade was barter, the direct exchange of
goods and services. Later one side of the barter were the metals, precious metals (poles, coins),
bill, paper money. Modern traders instead generally negotiate through a medium of exchange,
such as money. As a result, buying can be separated from selling, or earning. The invention of
money (and later credit, paper money and non-physical money) greatly simplified and promoted
trade. Trade between two traders is called bilateral trade, while trade between more than two
traders is called multilateral trade.
Indias Exports, Imports and Balance of Trade
The global slowdown had its impact on the economy of almost all the countries, including India.
The trade deficit in 2008-09 was much more (49.72 %) compare to the previous two years. As
such Indias trade deficit stood at Rs. 533680 crores during 2008-09 with values of exports and
imports at Rs. 840755 crores and Rs. 1374436 crores respectively. However, as may be seen
from Table 3.1 below that the position was better in 2009-10 as the trade deficit had decreased
(2.90 %) compare to last year. This happened due to the negative growth of import during 200910 ( 0.78 %). The trade deficit in 2009-10 was Rs. 518202 crores with values of exports and
imports as Rs. 845534 crores and Rs. 1363736 crores respectively.
Table 3.1: India's Exports, Imports, and Balance of Trade from 2000-01 to 2009-10
value in Rs. '00 crores
percentage growth
Year
Exports
Imports
Balance of Exports
Imports
Balance of
Trade
Trade
2000-01
2001-02
2002-03
2003-04
2004-05
(Revised)

2035.71
2090.18
2551.37
2933.67
3753.40

2308.73
2452.00
2972.06
3591.08
5010.65

-273.02
-361.82
-420.69
-657.41
-1257.25

27.58
2.68
22.06
14.98
27.94

7.26
6.21
21.21
20.83
39.53

-50.96
32.53
16.27
56.27
91.24

2005-06
2006-07
2007-08
2008-09
2009-10

4564.18
5717.79
6558.64
8407.55
8455.34

6604.09
8405.06
10123.12
13744.36
13637.36

-2039.91
-2687.27
-3564.48
-5336.80
-5182.02

21.60
25.28
14.71
28.19
0.57

31.80
27.27
20.44
35.77
-0.78

62.25
31.73
32.64
49.72
-2.90

Indias imports in 2009-10 was Rs. 1363736 crores compared to Rs. 1374436 crores in 2008-09,
resulting in a negative growth of import for the first time in about more than two decades.
Although there was negative growth of import in 2009-10, export growth was also less (0.57 %).
While negative growth implies importing less, (which may be good for economy in terms of selfsufficiency and foreign exchange reserve, etc.) decrease in export at the same time may not be
desirable.

Indias Export performance

Indias merchandise exports stood at Rs. 845534 crores in 2009-10 as compared to Rs.840755
crores during 2008-09, resulting only in a marginal growth of 0.57 % in 2009-10. The
corresponding growth was 28.19 % in 2008-09 indicating that there was less impact of global
recess/slowdown on Indias economy in the initial year.
Table 3.2A: India's Export to some important countries during the period from 2005-06 to
2009-10
Country
values in Rs. crores
percentage share to total
exports
200520062007200820092005200620072008200906
07
08
09
10
06
07
08
09
10
U A E 38039 54445 62915 11022 11334 8.33
9.52
9.59
13.11 13.41
9
8
U S A 76828 85368 83388 96458 92417 16.83 14.93 12.71 11.47 10.93
China 29925 37530 43597 42661 54714 6.56
6.56
6.65
5.07
6.47
P RP
Hong 19796 21179 25385 30391 37301 4.34
3.70
3.87
3.61
4.41
Kong

Singa
pore
Nether
land
UK
Germa
ny
Saudi
Arab
France
Belgiu
m
Japan
Korea
RP
Italy
Indon
esia
Malay
sia
Bangl
adesh
pr
Brazil
Sri
Lanka
DSR
South
Africa
Total

24020

27462

29662

37757

35948

5.26

4.80

4.52

4.49

4.25

10957

12082

21038

28890

30301

2.40

2.11

3.21

3.44

3.58

22399
15877

25421
18007

26967
20599

30345
29195

29476
25633

4.91
3.48

4.45
3.15

4.11
3.14

3.61
3.47

3.49
3.03

8012

11711

14923

22940

18552

1.76

2.05

2.28

2.73

2.19

9207
12712

9506
15722

10454
16943

13777
20309

17999
17757

2.02
2.79

1.66
2.75

1.59
2.58

1.64
2.42

2.13
2.10

10985
8090

12954
11379

15516
11482

13808
18354

17143
16127

2.41
1.77

2.27
1.99

2.37
1.75

1.64
2.18

2.03
1.91

11153
6111

16212
9177

15748
8693

17365
11578

16072
14605

2.44
1.34

2.84
1.60

2.40
1.33

2.07
1.38

1.90
1.73

5144

5902

10337

15780

13504

1.13

1.03

1.58

1.88

1.60

7369

7366

11743

11319

11495

1.61

1.29

1.79

1.35

1.36

4829
4829

6577
10206

10132
11374

11874
10893

11365
10290

1.06
1.06

1.15
1.79

1.54
1.73

1.41
1.30

1.34
1.22

6760

10165

10699

8994

9751

1.48

1.78

1.63

1.07

1.15

45641
8

57177
9

65586
4

84075
5

84553
4

100.0
0

100.0
0

100.0
0

100.0
0

100.00

Major Export Destinations

The most important destination of Indias exports was UAE during the year 2009-10. In terms of
value, Indias exports to UAE exceeded one lakh crores in 2009-10. Closely following UAE was
USA, for which the exports value stood at Rs. 92417. The shares of export values to the total
exports for both these countries were more than 10 % in 2009-10 and the next highest share was
that of China RP (6.47 %). However, in terms of annual growth rates, the exports to these top
two countries, i.e. UAE and USA are quite contrasting. While the exports to UAE grew only by
2.83 % in 2009-10 as compared to huge growth (75.20 %) in 2008-09, the growth of exports to
USA was negative (4.19 %) in 2009-10 and that was 15.67 % in 2008-09 (Table 3.2B). The
percentage shares of exports in the total exports to these top two countries, i.e., UAE and USA,
during the last five years from 2005-06 to 2009-10 are very contrasting. While the shares of
exports to UAE were increasing over the years, those of USA were decreasing during these

years, as may be seen from Table 3.2A. In fact as seen in Table 3.2A, from 2005-06 to 2007-08,
USA was the top destination country for exports and UAE was in the second position. But, for
2008-09 and 2009-10, their positions have just changed, thus UAE has replaced USA at the top.
However, the third positioned destination country, i.e., China RP was consistent in terms of 9
shares (between 5 6 %) of exports in the total exports during these years. In terms of shares of
exports, the next two top destination countries after UAE, USA, and China RP, are Hong Kong
and Singapore. While the shares of exports to Hong Kong during these years, i.e., from 2005-06
to 2009-10 were fluctuating, those of exports to Singapore were consistently decreasing. Among
the top 20 Export destinations, the growth of exports in 2009-10 was highest (30.65 %) for
France, followed by China (28.25 %), Indonesia (26.14 %), Japan (24.15 %), Hong Kong (22.74
%), etc. (Table 3.2B).

Table 3.2B India's Export to some important countries during the period from 2005-06
to 2009-10
Country
values in Rs. crores
percentage growth
2005-06 2006-07 2007-08 2008-09 2009-10 2006-07 2007-08 2008-09 2009-10
U A E 38039 54445 62915 11022 11334 43.13
15.56
75.20
2.83
9
8
U S A 76828 85368 83388 96458 92417 11.12
-2.32
15.67
-4.19
China 29925 37530 43597 42661 54714 25.41
16.17
-2.15
28.25
P RP
Hong
19796 21179 25385 30391 37301 6.99
19.86
19.72
22.74
Kong
Singap 24020 27462 29662 37757 35948 14.33
8.01
27.29
-4.79
ore
Nether 10957 12082 21038 28890 30301 10.27
74.12
37.32
4.88
land
UK
22399 25421 26967 30345 29476 13.49
6.08
12.52
-2.86
Germa 15877 18007 20599 29195 25633 13.42
14.39
41.73
-12.20
ny
Saudi
8012
11711 14923 22940 18552 46.16
27.42
53.73
-19.13
Arab
France 9207
9506
10454 13777 17999 3.25
9.97
31.78
30.65
Belgiu 12712 15722 16943 20309 17757 23.68
7.77
19.87
-12.57
m
Japan
10985 12954 15516 13808 17143 17.92
19.78
-11.01 24.15
Korea 8090
11379 11482 18354 16127 40.66
0.90
59.85
-12.13
RP
Italy
11153 16212 15748 17365 16072 45.37
-2.86
10.27
-7.44
Indone 6111
9177
8693
11578 14605 50.18
-5.28
33.19
26.14
sia

Malay
sia
Bangla
desh pr
Brazil
Sri
Lanka
DSR
South
Africa
Total

5144

5902

10337

15780

13504

14.73

75.15

52.65

-14.43

7369

7366

11743

11319

11495

-0.04

59.43

-3.62

1.56

4829
4829

6577
10206

10132
11374

11874
10893

11365
10290

36.21
111.38

54.05
11.44

17.20
-4.23

-4.29
-5.54

6760

10165

10699

8994

9751

50.37

5.25

-15.93

8.42

45641
8

57177
9

65586
4

84075
5

84553
4

25.28

14.71

28.19

0.57

Major Exports Table 3.3 below gives the export values of major items during 2005-06 to 200910. The most important item group exported by India in 2009-10 was Engineering goods with
value of exports more than 1.5 lakh crores and accounting for 18.25 % of Indias total exports.
But, export of 10 engineering goods during this period has decreased by 16.13 %, as compared to
2008-09 when it was Rs. 183998 crores. The main markets for these items are developed
countries and emerging economies like China. It is heartening to learn that Indias exports of
these sophisticated manufactured items to major economies have gone up substantially in recent
years. This indicates the newly gained maturity of Indias manufacturing base.
Gems and Jewellery is next important item in Indias export basket. Its share in total exports was
15.06 % in 2005 06 but decreased to 12.64 % and to 12.08 % in 2006-07 and 2007-08
respectively. However, it has recorded increases in the years 2008-09 (15.29 %) and 200910(16.27 %). Gems and jewellery are mainly exported to rich countries like USA, UK, Japan,
Belgium and Switzerland, trading nations like Hong Kong and Singapore, and also newly
industrialised countries like Thailand. UAE is also an important market.

Table 3.3: India's Export of major items during the period from 2005-06 to 200910
value in Rs. crores
2005-06
2006-07
2007-08
2008-09
2009-10
Tea
1731
1970
2034
2689
2944
Coffee
1589
1969
1872
2256
2032
Rice
6221
7036
11752
11164
11254
Tobacco
1331
1685
1932
3461
4344
Spices
2116
3158
4204
6338
6157
Cashew
2585
2491
2210
2901
2802
Oil Meals
4875
5504
8141
10269
7832
Fruits
& 2535
3611
3527
5111
5963
Vegetables
Marine
7036
8001
6927
7066
9900
Products
Iron Ore
16829
17656
23400
21725
28366
Mica, Coal 10460
14030
13317
14152
12731
&
Other
Ores,
Minerals
including
processed
minerals
Leather & 11600
13278
13674
15931
15551
leather

manufacture
s
Gems
&
Jewellery
Drug,
Phrmcutes
&
Fine
Chemls
Other Basic
Chemicals
Engineering
Goods
Electronic
Goods
Computer
Software
Cotton
Yarn/Fabs./
made-ups
etc.
Man-made
Yarn/Fabs./
made-ups
etc.
RMG of all
Textiles
Jute Mfg.
including
Floor
Covering
Carpet
Handicrafts
excl. hand
made carpet
Petroleum
Products
Plastic
&
Linoleum
Total
Exports

68753

72295

79228

128575

137568

22116

26895

30760

40422

42456

18293

22693

25345

31458

32351

85462

119874

135717

183998

154320

9621

12916

13484

31301

25895

419

378

599

1557

859

17465

19089

18721

18930

18732

8668

9975

11663

13919

17092

38154

40237

39001

50293

50791

1312

1178

1313

1376

1033

3775
2045

4199
1982

3796
2046

3565
1384

3482
1067

51533

84520

114192

123398

132899

12482

14718

13763

13817

15913

456418

571779

655864

840755

845534

An obvious development in the field of exports is the recent surge in exports of petroleum
products. The share of this group in Indias export basket has gone up from 4.84 % in 2001-02 to
as much as 17.41% in 2007-08, making it the third most important export item group. After

2007-08 it showed a decrease in terms of its share in total exports to 14.68% in 2008-09 but
recorded a marginal increase in 2009-10 (15.72 %). In terms of export growth over the previous
year, petroleum products recorded maximum growth in 2006-07 (64.01 %). Thereafter it
recorded a decrease in growth over the last three years (35.11 % in 2007-08, 8.06 % in 2008-09
and 7.70 % in 2009-10). The major export destinations for this commodity also include some oilproducing countries like Iran, UAE and Indonesia. The countries like Singapore, Netherlands,
Brazil and Sri Lanka are other important buyers.

Table 3.3A: India's Export growth of major items during the period from 2005-06
to 2009-10
growth (%) over the previous year
2006-07
2007-08
2008-09
2009-10
Tea
13.8
3.2
32.2
9.5
Coffee
23.9
-4.9
20.5
-9.9
Rice
13.1
67.0
-5.0
0.8
Tobacco
26.6
14.7
79.1
25.5
Spices
49.2
33.1
50.8
-2.9
Cashew
-3.6
-11.3
31.3
-3.4
Oil Meals
12.9
47.9
26.1
-23.7
Fruits
& 42.4
-2.3
44.9
16.7
Vegetables
Marine
13.7
-13.4
2.0
40.1
Products
Iron Ore
4.9
32.5
-7.2
30.6
Mica, Coal & 34.1
-5.1
6.3
-10.0
Other
Ores,
Minerals
including
processed
minerals
Leather
& 14.5
3.0
16.5
-2.4
leather
manufactures
Gems
& 5.2
9.6
62.3
7.0
Jewellery
Drug,
21.6
14.4
31.4
5.0
Phrmcutes &
Fine Chemls
Other
Basic 24.1
11.7
24.1
2.8
Chemicals

Engineering
Goods
Electronic
Goods
Computer
Software
Cotton
Yarn/Fabs./ma
de-ups etc.
Man-made
Yarn/Fabs./ma
de-ups etc.
RMG of all
Textiles
Jute
Mfg.
including Floor
Covering
Carpet
Handicrafts
excl.
hand
made carpet
Petroleum
Products
Plastic
&
Linoleum
Total Exports

40.3

13.2

35.6

-16.1

34.2

4.4

132.1

-17.3

-9.8

58.5

159.9

-44.8

9.3

-1.9

1.1

-1.0

15.1

16.9

19.3

22.8

5.5

-3.1

29.0

1.0

-10.2

11.5

4.8

-24.9

11.2
-3.1

-9.6
3.2

-6.1
-32.4

-2.3
-22.9

64.0

35.1

8.1

7.7

17.9

-6.5

0.4

15.2

25.3

14.7

28.2

0.6

Basic chemicals (Drug, Phrmcutes & Fine Chemls and other basic chemicals combined) is an
area in which India is consistently doing well as far as exports are concerned. In the recent years,
basic chemicals have replaced readymade garments from the fourth most important source of
foreign exchange earner. In 2006-07, basic chemicals accounted for around 8.67 % of Indias
total value of export. In the next two years it remained at 8.55 % and thereafter it showed a
marginal increase in 2009-10(8.85 %).
Traditionally, India has had a comparative advantage in textiles. But the share of this item in
Indias total exports is gradually decreasing over the years. The share of this commodity in 12
Indias total volume of export has come down to 7.04 % in 2006-07 from 11.42 % in 2001-02
and it has further decreased to 5.95 % in 2007-08. Thereafter it recorded a marginal increase in
the following two years (5.98 % in 2008-09 and 6.01% in 2009-10). However, it still continues
to be the fourth largest foreign exchange earner for the country when considered basic chemicals
separately from other basic chemicals. Indias main markets for this item group are the
developed western countries like USA, UK, Germany, France and Italy and also UAE.

Import performance
Major Import Sources
Indias imports from top twenty countries, based on 2009-10 figures and covering 73.72 % value
share of imports, during last five years, i.e., from 2005-06 to 2009-10, are presented in Table
3.5A. The table also indicates the percentage share of these countries. It can be seen from the
table that for the last five years, Indias imports from the Peoples Republic of China remained
consistently maximum. Although the percentage shares of imports from China was less than 10
% in the initial two years (7.29 % in 2005-06 and 9.40 % in 2006-07), it is around 11 % for the
last three years. This indicates the importance of Chinese goods in Indian markets as the shares
of imports from the next four major countries are much less the United Arab Emirates (UAE)
has a share of 6.73 %, followed by Saudi Arab and USA (both at 5.91 %), and Switzerland (5.08
%). The United Arab Emirates is the second major source of imports for the last two years. Saudi
Arab and USA remain at the top three or four countries for the last four years.
Table 3.5A: Percentage share of Top 20 Major Importer Countries (based on 2009-10
import values) to the total imports
value in Rs. crores
Coun 2009- % of 2008- % of 2007- % of 2006- % of 2005- % of
try
10
total
09
total
08
total
07
total
06
total
impor
impor
impor
impor
impor
t
t
t
t
t
China 14604 10.71 14760 10.74 10911 10.78 79009 9.40
48117 7.29
P RP
9
6
6
UAE 91799 6.73
10592 7.71
54233 5.36
39175 4.66
19277 2.92
6
Saudi 80664 5.91
89747 6.53
78110 7.72
60562 7.21
7227
1.09
Arab
USA
80584 5.91
84818 6.17
84625 8.36
53105 6.32
41859 6.34
Switz 69232 5.08
52703 3.83
39571 3.91
41283 4.91
29025 4.39
erland
Austr 58662 4.30
50497 3.67
31552 3.12
31711 3.77
21906 3.32
alia
Iran
54636 4.01
55822 4.06
43946 4.34
34515 4.11
3110
0.47
Germ 48886 3.58
54922 4.00
39736 3.93
34147 4.06
26669 4.04
any
Indon 41009 3.01
30751 2.24
19421 1.92
18865 2.24
13318 2.02
esia
Korea 40551 2.97
39658 2.89
24308 2.40
21747 2.59
20206 3.06
RP
Kuwa 38988 2.86
43199 3.14
30960 3.06
27114 3.23
2045
0.31
it
Nigeri 34377 2.52
39995 2.91
30663 3.03
31797 3.78
321
0.05
a
Iraq
33273 2.44
34285 2.49
27495 2.72
25005 2.97
9
0.00
Japan 31894 2.34
35833 2.61
25458 2.51
20795 2.47
17980 2.72
Singa 30623 2.25
34529 2.51
32682 3.23
24840 2.96
14848 2.25
pore

Belgi
um
South
Africa
Malay
sia
Hong
Kong
Qatar
Major
Count
ries
Total
All
Count
ries
Total

28466

2.09

26058

1.90

17546

1.73

18742

2.23

20920

3.17

26900

1.97

24882

1.81

14547

1.44

11184

1.33

10944

1.66

24494

1.80

32592

2.37

24176

2.39

23959

2.85

10695

1.62

22317

1.64

29733

2.16

10867

1.07

11239

1.34

9771

1.48

22010
10054
12

1.61
73.72

15895
10294
52

1.16
74.90

9889
74890
0

0.98
73.98

9359
61815
2

1.11
73.55

3992
32223
7

0.60
48.79

13637
35

100.0
0

13744
36

100.0
0

10123
12

100.0
0

84050
6

100.0
0

66040
9

100.0
0

Imports from China has exceeded one lakh crores since 2007-08 Rs. 146049 crores in 2009-10,
Rs. 147606 crores in 2008-09 and 109116 crores in 2007-08. In absolute terms, imports from
China in 2009-10 have multiplied by almost three times from 2005-06 and almost doubled from
2006-07. Although imports from UAE were more than one lakh crores in 2008-09, it came down
to Rs. 91799 crores in 2009-10. 16

The countries namely Saudi Arabia, Iran, Kuwait, Nigeria, Iraq, UAE etc. are the major countries
from where imports of Petroleum Crude and Products took place. The value of petroleum
imports from theses six countries were as high as 62 %, 70 % and 72 % of total petroleum
imports during 2007-08, 2008-09 and 2009-10 respectively (Table 3.9B, Chart 3.12). Due to the
increased petroleum prices over the years, the volume of imports (in value) from these countries
are very high and thus these countries rank high during these years. The imports from each of
these countries are mainly petroleum products as may be seen from Table 3.10.
In terms of growth, the total imports of India has decreased, though insignificantly, during 200910 by 0.78 % in comparison to the previous three years, when the annual growths were 27.27 %,
20.44 % and 35.77 % respectively in 2006-07, 2007-08 and 2008-09. This negative growth of
import for 2009-10 is reflected in the imports from almost all major countries except Qatar
(38.47 %), Indonesia (33.36 %), Switzerland (31.36 %), Australia (16.17 %), Belgium (9.24 %)
and South Africa (8.11 %) where there are still positive growths over the previous year.

Table 3.5B: annual growth of import of Top 20 Major Importer Countries (based on
2009-10 import values)
value in Rs. crores
Count 20052006%
2007%
2008%
2009%
ry
06
07
growt 08
growt 09
growt 10
growt
h
h
h
h
China
48117 79009 64.20
109116 38.11
147606 35.27
146049 -1.05
P RP
UAE
19277 39175 103.22 54233 38.44
105926 95.32
91799 -13.34
Saudi
7227
60562 738.00 78110 28.98
89747 14.90
80664 -10.12
Arab
USA
41859 53105 26.87
84625 59.35
84818 0.23
80584 -4.99
Switze 29025 41283 42.23
39571 -4.15
52703 33.19
69232 31.36
rland
Austral 21906 31711 44.76
31552 -0.50
50497 60.04
58662 16.17
ia
Iran
3110
34515 1009.8 43946 27.32
55822 27.02
54636 -2.13
0
Germa 26669 34147 28.04
39736 16.37
54922 38.22
48886 -10.99
ny
Indone 13318 18865 41.65
19421 2.95
30751 58.34
41009 33.36
sia
Korea 20206 21747 7.63
24308 11.78
39658 63.15
40551 2.25
RP
Kuwait 2045
27114 1226.0 30960 14.18
43199 39.53
38988 -9.75
1
Nigeria 321
31797 9811.0 30663 -3.57
39995 30.44
34377 -14.05
2
Iraq
9
25005 275285 27495 9.96
34285 24.70
33273 -2.95
.68

Japan
Singap
ore
Belgiu
m
South
Africa
Malays
ia
Hong
Kong
Qatar
Major
Countr
ies
Total
All
Countr
ies
Total

17980
14848

20795
24840

15.66
67.29

25458
32682

22.42
31.57

35833
34529

40.75
5.65

31894
30623

-10.99
-11.31

20920

18742

-10.41

17546

-6.38

26058

48.51

28466

9.24

10944

11184

2.20

14547

30.06

24882

71.05

26900

8.11

10695

23959

124.02

24176

0.91

32592

34.81

24494

-24.85

9771

11239

15.03

10867

-3.31

29733

173.60

22317

-24.94

3992
9359
134.46
322237 618152 91.83

9889
5.66
748900 21.15

15895 60.73
102945 37.46
2

22010 38.47
100541 -2.34
2

660409 840506 27.27

101231 20.44
2

137443 35.77
6

136373 -0.78
5