LESSON – 14
OBJECTIVES
After going through this chapter, you should be able to
- Understand the trend of Indian foreign trade during the plan period.
- Know the position of Indian Balance of Payments during the plan period.
STRUCTURE
14.1. Foreign Trade on the Eve of Planning
14.1.1 1951 – 52 to 1955 – 56 I Plan period
14.1.2 1956 – 57 to 1960 – 61 II Plan Period
14.1.3 1961 – 62 to 1965 – 66 III Plan Period
14.1.4 Devaluation of 1966 and upto 1973 – 74
14.1.5 1974 – 79 V Plan Period
14.1.6 1980 onwards VI and VII Plan Period
14.1.7 1989 – 90 and thereafter
14.1.8 VIII Plan
14.1.9 Ninth Plan
14.2 Indian’s Balance of Payment
14.2.1 The First Plan Period
14.2.2 The Second Plan Period
14.2.3 Third Plan and Annual Plan
14.2.4 The Fourth Plan Period
14.2.5 The Fifth Plan Period
14.2.6 The Sixth and Seventh Plan Period
14.2.7 1990 – 91 and Thereafter
Unit Questions
14.1. FOREIGN TRADE ON THE EVE OF PLANNING
On the eve of planning, the foreign trade of India showed an excess of imports over exports. The rise in imports was largely due to (a) pent-up demand of the war and the post-war period as a consequence of various controls and restrictions, (b) the shortage of food and basic raw materials like jute and cotton as a result of partition, (c) the rise in the imports of machinery and equipment or capital goods – to meet the growing demand for hydro-electric and other projects started during the period.
14.1.1. 1951 – 52 to 1955 – 56 I Plan period
The annual average value of imports during the First Plan period was Rs.730 crores and that of exports Rs.622 crores. In this way, the average annual trade deficit, worked out to be Rs.108 crores. Trade deficit was largely due to programmes of industrialisation which gathered momentum and pushed up the imports of capital goods. There was no improvement in exports.
14.1.2 1956 – 57 to 1960 – 61 II Plan Period
During the Second Plan, a massive programme of industrialization was initiated. This included the setting up of the steel plants, heavy expansion and renovation of railways and modernisation of many industries, and as a result, the quantum of imports reached a very high level. Besides this, the maintenance imports required for a developing economy further increased our imports. Food grains imports had to be resorted to overcome internal shortages and rising prices. Consequently, the trade balance became heavily adverse to the tune of Rs.467 crores.
14.1.3 1961 – 62 to 1965 – 66 III Plan Period
The record of exports during the Third Plan shows that average export earnings worked out to be Rs.747 crores. As against it, actual annual average imports worked out to be Rs.1,224 crores. The increase in the volume of imports during the Third Plan was due to three factors. Firstly, rapid industrialisation necessitated larger imports of machinery, equipment, industrial raw material and technical know-how. Secondly, the defence needs had increased following aggression by China and Pakistan. Finally, large quantity of foodgrains was imported, partly because it was easily available and partly because of the extensive failure of crops in 1965 – 66.
14.1.4 Devaluation of 1966 and upto 1973 – 74
The balance of trade situation worsened during 1966 – 67 and 1967 – 68. However, with a better crop during 1968 – 69, foodgrain imports declined. Moreover, devaluation also produced its healthy effect in stimulating exports. Consequently, balance of trade which was unfavourable to the tune of Rs. 788 crores during 1967 – 68 declined significantly during the next three years. As a consequence of the policies of import restriction and reduction in foodgrain imports coupled with vigorous measures of export promotion, during 1972-73, the country was able to have a favourable balance of trade for the first time since Independence.
14.1.5. 1974 – 79 V Plan Period
The hike in oil prices which started in October 1973 seriously affected the pattern of trade throughout the world and India was no exception. The value of imports during the Fifth Plan period reached very high levels – largely the result of a sharp increase in the cost of India’s major imports viz., petroleum, fertilisers and foograins. Simultaneously, there was a significant improvement in India’s exports as they successively rose every year during the Fifth Plan period. The rise was so fast that by 1976 – 77, exports at Rs.5,143 crores exceeded imports by Rs. 69 crores – balance of trade surplus emerged for the second time since 1951.
14.1.6 1980 onwards VI and VII Plan Period
The annual average imports during the Sixth Plan (1980 – 1981 to 1984 – 85) were of the order of Rs. 14,603 crores as against annual exports of the order of Rs. 8,987 crores. Consequently, a huge annual average trade deficit of the order of about Rs. 5,716 crores was witnessed during the Sixth Plan. During the Seventh Plan period (1985 – 86 to 1989 – 90) on account of the policies of indiscriminate liberalisation followed by the Congress Government and later endorsed by the Janata Dal Government, the average annual imports shot up to Rs. 25,112 crores, but exports averaged Rs. 17,382 crores. Thus an unprecedented annual average trade deficit of the order of Rs.10841 crores emerged.
14.1.7. 1989 – 90 and thereafter
During 1990 – 91, according to DGCI & S figures, there is no doubt that a push was given to our export effort and exports shot up to Rs.32,558 crores in 1990-91 indicating an increase of 17.7%, but as a consequence of the Gulf War, the Government failed to curb imports and they reached a record level of Rs.43,193 crores-an increase of 22.6 per cent. As a result of the sharp increase in imports, trade deficit shot upto a high figure of Rs.10, 635 crores.
During 1991-1992, exports in dollar terms showed a decline. Despite the fact that the Government introduced a number of measures in the new trade policy allowing exim scrips, abolishing cash compensatory support (CCS) schemes as also a two-step devaluation of the rupee, but these measures failed to boost up exports.
14.1.8. Foreign Trade During Eighth Plan
During Eight Plan, export effort picked up in 1996-97 at a fast rate. But simultaneously, policies of liberalisation accompanied with reduction of custom duties resulted in increase of imports. Consequently, the trade deficit which was of the order of $ 1,545 million in 1991-92 increased to $ 5,662 million in 1996-97 it rose by over three times.
14.1.9 Foreign Trade during the Ninth Plan (1997-2002) and After
As a result of the sharp deterioration in world economic environment in trade, the South-East Asian crisis, continued recession in Japan Russia India
14.2. Indian Balance of Payment
The balance of payments of a country is a systematic record of all economic transactions between the ‘residents’ of a country and the rest of the world.
14.2.1. 1951 – 52 to 1955 – 56 The First Plan Period
During the First Plan period, the balance of payments was affected by the Korean War boom, American recession of 1953 and favourable monsoon at home which helped to boost agricultural and industrial production. While India India
14.2.2. 1956 – 57 to 1960 – 61 The Second Plan Period
An important feature of the Second Plan period was the heavy deficit in the balance of trade which aggregated to Rs. 2,339 crores. Earnings on account of invisibles and donations from friendly countries totalled Rs. 614 crores. Making an allowance for these, the unfavourableness in the balance of payments, during Second Plan period was of the order of Rs.1,725 crores. The highly unfavourable balance of payments in the Second Plan was the result of (a) heavy imports of capital goods to develop heavy and basic industries, (b) the failure of agricultural production to rise to meet the growing demand for food and raw materials from a rapidly growing population and expanding industry; (c) the inability of the economy to increase exports; and (d) the necessity of making minimum ‘maintenance imports’ for a developing economy. As a result, the foreign exchange reserves sharply declined and the country was left with no choice but to think of ways and means to restrict imports and expand exports.
14.2.3. Third Plan and Annual Plans
The balance of payments was unfavourable during the Third Plan. This was mainly because (a) imports were exapnding faster under the impact of defence and development and to overcome domestic shortages and (b) exports were extremely sluggish and failed to match imports. The serious adverse balance of payments which started with the Second Plan continued relentlessly during the Third and the Annual Plans. The trade deficit during the Annual Plans was quite large. This was because of the heavy imports of foodgrains to overcome famine conditions and internal shortage of foodgrains on the one side and inadequate exports due to economic recession on the other. Besides, devaluation of the rupee was a failure and instead of reducing the trade balance deficit, it further aggravated it.
14.2.4 . 1969 – 70 to 1973 - 74 The Fourth Plan Period
One of the objectives of the Fourth Plan was self-reliance – i.e., import substitution of certain critical commodities on the one side and export promotion so as to match the rising import bill, on the other. Accordingly, the Government managed to restrict imports and succeeded in expanding exports. On the import side, restriction of imports was made possible through good crops and consequent significant reduction of imports of foodgrains. On the export side, vigorous export promotion measures succeeded in boosting exports of traditional as well as non traditional items. The net result was a surplus in the balance of payments, for the first time, though the surplus was only a nominal amount of Rs. 100 crores.
14.2.5. 1975 – 76 to 1978 – 79 The Fifth Plan Period
During the Fifth Plan, trade balance was affected by two factors: (a) the value of imports was rapidly mounting due to the hike in oil prices. and (b) the value of exports was also rising under the impact of promotional measures. These two factors explained the gradual decline in the deficit in the trade balance and the appearance of a surplus in the trade balance in 1976-77.
14.2.6. The Sixth and Seventh Plan Period
There has been a sea change in the balance of payments position since 1979-80. As against the surplus balance of payments experienced by the country during the whole of the Fifth Plan, India started experiencing adverse balance of payments from 1979-80 onwards. For one thing, trade deficit began to widen from 197 8-79. The picture was due to the tremendous rate of growth of imports on the one side and a much lower rate of growth of exports since
1979-80. The current balance of payments became adverse to the tune of Rs.11,384 crores during the Sixth Plan. Apart from net external assistance.India India
1979-80. The current balance of payments became adverse to the tune of Rs.11,384 crores during the Sixth Plan. Apart from net external assistance.
14.2.7 1990 – 91 and Thereafter
During the Eighth Plan (1992-93 to 1996-97), trade deficit has been mounting; By 1996-97, it has reached a record le\el of Rs. 52,561 crores from that of Rs. 16,934 crores in 1990-91 —a threefold increase.
Taking the entire Ninth Plan period 1997-98 to 2001-02), trade deficit was wiped out to the extent of 78 per cent in invisible account surplus. Consequently. the total deficit in current account balance was of the order of the Rs. 70,670 crores for the Ninth Plan.
Unit Questions
1. Trade the growth and development of Indian foreign trade during the plan periods.
2. Give an account of India
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