Introduction to Direction of India's Foreign Trade

By direction of trade we mean the countries with which India keeps international
trade relations. It also helps us to understand the diplomatic relations maintained
by India with other countries in direction of trade.

For the purpose of direction of trade, the countries to which India exports are
broadly divided into following five groups.

Direction of India foreign trade changes in import and export

The group of countries to which India Exports are :-

Organisation for Economic Co-operation & Development (OECD) comprising of

USA, Canada, European Union (EU), Australia and Japan.

Organisation of Petroleum Exporting Countries (OPEC) which includes Kuwait,

Iran, Iraq, Saudi Arabia and others.

Eastern Europe which includes Romania, Russia and others.

Developing Nations which includes China, Hong Kong, South Korea, Singapore
and Malaysia.

Direction of India's Exports

Direction of India foreign trade changes in export table

The above table reveals following changes in India's Exports :-

1. OECD

The OECD group accounted for a major portion of India's exports. The share of this group
was 56.4% in 1990-91 & 44.3% in 2005-06. About 45% of these exports have been to
European Union (EU) countries.

2. OPEC

The share of OPEC which was 5.6% in 1990-91. In 2005-06 it has increased to 14.8% i.e.
share of OPEC has been showing an upward trend since 1990-91.

3. Eastern Europe

There was a rapid decrease in the share of Eastern Europe particularly U.S.S.R. Due to
political problems & disintegration of the U.S.S.R, the share of Eastern Europe decreased
from 17.9% in 1990-91 to 1.9% in 2005-06.

4. Developing Countries

The share of developing nations increased from 17.1% in 1990-91 to 38.7% in 2005-06.
Asian countries now account for 1/4th of India's export earnings. Among the Asian countries
the major export destinations have been Hong Kong, Singapore & Thailand.

5. Other Countries

The share of other countries has declined from 3.00% in 1990-91 to 0.3% in 2005-06.

Important Facts of India's Country Wise Exports

1. The share of U.K in India's exports declined from 26.9% in 1960-61 to 4.5% in 2004-
05.
2. The share of USA in India's exports was 16% in 1960-61 and it rose to 16.7% in
2004-05. India was dependent on U.K and U.S.A for 43% of its export earnings in
1960-61. US to be the single largest trading partner for India but with a declining
trend.
3. The share of U.S.S.R. (Russia) rose from 4.5% in 1960-61 to 18.3% in 1980-81 but
declined to 0.8% in 2004-05 due to the disintegration of U.S.S.R. Between 1986-90,
the first position was occupied by U.S.A, second position by U.S.S.R and the third
position by Japan. The position changed markedly after the disintegration of U.S.S.R.
4. In the recent years, export to East Asian Countries has increased, mainly Hong Kong,
Singapore and Thailand.
5. There has been a healthy growth of bilateral trade between India and China. In the
first seven months of 2002-03, Indo-China bilateral trade expanded by 43.4%. China
is the second largest trading partner for India next to USA.
Direction of India's Imports

Since the last decade, there has been a distinct shift in the direction of trade. The share of
OECD countries both in exports & imports is on the decline. Eastern Europe is no more a
major partner in our trade. Its share has reached the lowest among the group. The Asian
developing countries are becoming important trade partners.
Direction of India foreign trade changes in import table

The above table reveals following changes in India's Imports :-

1. OECD - Organisation for Economic Co-operation and Development

The share of OECD in India's import expenditure declined from 54% in 1990-91 to 32.73%
in 2005-06. Thus the importance of OECD declined over the period 1990-91 to 2005-06.

2. OPEC - Organisation of Petroleum Exporting Countries

OPEC mainly include Iran, Iraq, Kuwait and Saudi Arabia. The share of OPEC countries
decreased from 16.3% in 1990-91 to 7.7% in 2005-06 mainly because of crude oil. There has
been a change in the source of oil imports from OPEC to other countries.

3. Eastern Europe

This includes mainly the former USSR. India's share of imports from Eastern Europe has also
declined from 7.8% in 1990-91 to 2.6% in 2005-06. This is mainly due to decline in imports
from Russia.

4. Developing Nations

This includes the developing countries of Africa, Asia, Latin America and Caribbean. The
share of developing nations in India's import expenditure increased from 18.4% in 1990-91 to
25.9% in 2005-06.

5. Other Countries

The share of other countries increased from 3.5% in 1990-91 to 31.1% in 2005-06.
Important Facts of India's Country Wise Imports
1. The share of U.S.A in India's imports was 29.2% and that of U.K was 19.4% in 1960-
61. U.S.A. ranked first and U.K ranked the second. During the whole planning period,
India has obtained maximum imports from U.S.A.
2. With the emergence of new trading partners like Japan, Germany and Canada the
dependence on U.K. declined. The share of U.K. in Indian imports declined from
19.4% in 1960-61 to 3.2% in 2004-05.
3. Trade with Japan increased in absolute terms and India has now entered in to a
number of collaborations with Japan. The percentage share of Japan has decreased
from 5.4% in 1960-61 to 2.8% in 2004-05.
4. Trade with USSR occupied the second place next to USA, during 1984. The share of
USSR increased from 1.4% in 1960-61 to 10.4% in 1984-85. With the disintegration
of USSR, the share of Russia fell to 1.2% in 2004-05. The directions has now changed
markedly.
5. The share of developing countries has constituted more than 1/4th of total imports in
2004-05 of these imports from Asian countries are most important.

Conclusion on Direction of India's Foreign Trade

Significant changes have taken place in the direction of India's foreign trade since 1991, and
more particularly during the last two-three years. What's most significant is the emergence of
China, Singapore, Hong Kong, South Korea & Malaysia as important trading partners of
India from the Asian region, Switzerland from OECD countries, and UAE & Indonesia
(which left OPEC in 2008) from OPEC countries.
However, India should cultivate more trade relations with Africa, South America and Middle-
East Asian Countries as these rich countries would offer huge markets for India's export.
The diversification of India's exports has fetched a cheaper source of imports and a bigger
market for exports. India has established herself in the highly competitive world market in the
recent years.