Maharashtra Board Class 12 Economics Chapter 10 Money Market and Capital Market in India PDF Download

Foreign Trade Of India

Introduction

Before 1947, the pattern of India's foreign trade was typically colonial. India was a supplier of raw materials to the industrialized nations, particularly England and importer of manufactured goods. This dependence on foreign trade did not permit industrialization at home. As a result the indigenous handicrafts suffered a severe blow. However, many underdeveloped countries that won independence in the post World War II period, viewed foreign trade as an investment.

Teacher's Note

Before Independence, India only sold raw materials like cotton and tea to England. Now India makes finished goods and sells them to the world. This is like how a farmer's child can now run a factory.

Exam Trick

Remember: Before 1947 = raw materials only. After 1947 = finished goods. India changed from supplier to producer, just like changing from a helper to a boss.

Points to Remember

Before 1947, India sold only raw materials to England.

Colonial trade did not allow India to build its own industries.

After Independence, India started making finished goods and exporting them.

Meaning Of Internal Trade

Buying and selling of goods and services within the boundaries of a nation are referred to as 'Internal Trade' or 'Domestic Trade' or 'Home Trade'. For example, if goods produced in Maharashtra are sold to states like West Bengal, Uttar Pradesh, Tamil Nadu etc, then it is known as internal trade.

Teacher's Note

Internal trade is buying and selling goods between states within India. When you buy rice from Punjab in Delhi, that is internal trade. It stays within India only.

Exam Trick

Remember: Internal = Inside India only. Like buying apples from Himachal Pradesh and selling them in Tamil Nadu. The money and goods stay in India.

Points to Remember

Internal trade is buying and selling goods within one country.

Internal trade is also called domestic trade or home trade.

Trade between different states of India is internal trade.

Meaning Of Foreign Trade

Foreign Trade is trade between the different countries of the world. It is called as International Trade or External Trade.

According to Wasserman and Hultman, "International Trade consists of transaction between residents of different countries".

Teacher's Note

Foreign trade means buying and selling goods between different countries. When India sells tea to China, that is foreign trade. Money and goods move between countries.

Exam Trick

Remember: Foreign trade = Between countries. Like India exporting tea to Japan. The goods go outside India and bring money back to India.

Points to Remember

Foreign trade is buying and selling goods between different countries.

Foreign trade is also called international trade or external trade.

It involves exchange of goods between residents of different countries.

Types Of Foreign Trade

Foreign trade is divided into the following three types.

1) Import Trade

2) Export Trade

3) Entrepot Trade

1) Import Trade

Import trade refers to purchase of goods and services by one country from another country or inflow of goods and services from foreign country to home country. For example, India imports petroleum from Iraq, Kuwait, Saudi Arabia, etc.

2) Export Trade

Export trade refers to the sale of goods by one country to another country or outflow of goods from one country to foreign country. For example, India exports tea, rice, jute to China, Hong Kong, Singapore etc.

3) Entrepot Trade

Entrepot trade refers to purchase of goods and services from one country and then selling them to another country after some processing operations. For example, Japan imports raw material required to make electronic goods like, radio, washing machine, television etc. from England, Germany, France etc. and sells them to various countries in the world after processing them.

Teacher's Note

Import means buying from other countries. Export means selling to other countries. Entrepot trade means buying raw material, making something new from it, and then selling it. Like how India buys iron ore and sells iron tools.

Exam Trick

Remember: Import = India buys (comes IN). Export = India sells (goes OUT). Entrepot = Buy, make, sell (like a factory). Use "In" and "Out" to remember Import and Export.

Points to Remember

Import trade is buying goods from other countries.

Export trade is selling goods to other countries.

Entrepot trade is buying raw material, processing it, and then selling finished goods.

India imports petroleum because we do not have enough oil.

India exports tea and rice because we grow them well.

Role Of Foreign Trade

Trade is an engine of growth of an economy, because it plays an important role for economic development. In developed countries it represents a significant share of Gross Domestic Product.

Role of foreign trade can be justified on the basis of the following points:

1) To Earn Foreign Exchange

Foreign trade provides foreign exchange which can be used for very productive purposes. Foreign trade is a remarkable factor in expanding the market and encouraging the production of goods.

2) Encourages Investment

Foreign trade creates an opportunity for the producers to reach beyond the domestic markets. It encourages them to produce more goods for export. This leads to an increase in total investment in an economy.

3) Division Of Labour And Specialization

Foreign trade leads to division of labour and specialization at world level. Some countries have abundant natural resources, they should export raw material and import finished goods from countries which are advanced in skilled manpower. Thus, foreign trade gives benefits to all countries thereby leading to division of labour and specialization.

4) Optimum Allocation And Utilization Of Resources

Due to specialization, resources are channelized for the production of only those goods which would give highest returns. Thus, there is rational allocation and specialization of resources at the international level due to foreign trade.

5) Stability In Price Level

Foreign trade helps to keep the demand and supply position stable which in turn stabilizes the price level in the economy.

6) Availability Of Multiple Choices

Foreign trade provides multiple choices of imported commodities. As foreign trade is highly competitive it also ensures a good quality and standard products. This raises the standard of living of people.

7) Brings Reputation And Helps Earn Goodwill

Exporting country can earn reputation and goodwill in the international market. For example, countries like Japan, Germany, Switzerland etc. have earned a lot of goodwill and reputation in foreign market for their qualitative production of electronic goods.

Teacher's Note

Foreign trade helps countries grow and earn money. It also helps people get better quality goods. For example, India earns money by selling tea and cotton to the world, and we get good medicines and technology from other countries.

Exam Trick

Remember: Foreign trade = Growth engine. It gives foreign money, creates jobs, and gives people good quality goods. Think of it like a student studying hard to earn respect and money in the future.

Points to Remember

Foreign trade helps countries earn foreign exchange and grow their economy.

It encourages producers to make more goods for export.

Foreign trade leads to division of labor and specialization.

It helps stabilize prices by balancing demand and supply.

Foreign trade brings reputation and goodwill to exporting countries.

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