# GSEB Class 12 Economics Notes Chapter 9 Foreign Trade

This GSEB Class 12 Economics Notes Chapter 9 Foreign Trade covers all the important topics and concepts as mentioned in the chapter.

## Foreign Trade Class 12 GSEB Notes

Meaning of Domestic and International (Foreign) Trade:

• Trade: Trade is a commercial activity which involves exchange of goods and services for earning profit.
• Domestic (Internal) Trade: Trade which takes place within the geographical boundary of a nation is called domestic (internal) trade.
• International (Foreign) Trade: Trade which takes place outside the geographical boundary of a nation is called international or foreign trade.

• Difference in factors of production of a country
• Difference in cost of production
• Technological progress
• Division of labour and
• Specialization.

Nature of International Trade means such special features and aspects of trade which gives it a unique identity from other activities.

• The geographical and occupational mobility of factors of production is lesser.
• Trade takes place in many varieties of goods.
• It is more challanging in nature.
• It requires diplomatic efforts.
• It requires knowledge and forecasts regarding the value of different currencies.
• It is a joint effort of nations and international organisations.
• It has impact of political and social ideologies.
• It has vast scale.
• It involves more permissions and taxes.
• It involves higher degree of competition.

The difference between Domestic and International trade is

• Based on scale
• Based on currencies and modes of payment
• Based on language; culture and society
• Based on transport cost
• Based on degree of competition
• Based on consumer satisfaction and
• Based on administrative and legal systems.

Magnitude of World Trade in Present Times: Trends of world trade by World Trade Report, 2013 are as follows:

• Since mid-1800s, the world’s population has grown about 6 times. World output has grown up 60 times and world trade has grown over 140 times.
• Dramatic decrease in transport and communication costs and increase in geopolitics have played a decisive role in advancing and reinforcing today’s global trading system.
• In last 30 years world trade and commercial services have increased by 7 per cent per year on average.
• Between 1980 and 2011, the share of developing economies in world trade increased from 34 % to 47 % and their share in world imports increased from 29 % to 42 %.
• The Asian countries are playing an important role in world trade.
• For a number of decades, world trade has grown on average nearly twice as fast as world production which indicates the development of marketing system of world trade.
• During 1950-1973 average annual growth of world trade was 7.88%, which was reduced to 5 % during 2000-2011 and 2.8% during 2015- 16.

• India’s share in the world trade has remained low but as a developing nation India plays an important role in determining direction of world trade
• In india the growth rate of imports has been higher than the growth rate of exports. Hence, imports constitute a greater percentage of GDP than exports.
• India is able to export more because it is now able to produce better and desirable quality of goods at a competitive price and is able to generate more exportable surplus.
• Share of India’s exports in the world exports was 1.7% in the year 2014 and the rank of India in world’s export was 19.

Size, Nature and Direction of India’s Foreign Trade:
1. Size of India’s Foreign Trade: Size of foreign trade means the total value and volume of merchandise imports and export of a country.

• If the payments made towards imports and revenues generated from export rises and the share of country’s trade in world trade rises, then it is concluded that the size of the country’s foreign trade had increased.
• After independence in the initial years due to low development the size of imports remained large and owing to lower capacity to export india’s exports remained lower.
• To sustain international competition, after 1991 the demand for technology, petrol, etc. remained very high but along with this exports increased significantly.
• The percentage share of trade in India’s GDP was 19% in the year 2001, which increased to 38.3% in 2014.

2. Nature of India’s Foreign Trade: Nature of trade means a picture of the items of merchandise imports and exports.

• In the decade between 1950 and 1960, in a less developed country like india, food grain imports and developmental imports were high. Whereas exports of primary goods like tea, coffee, jute, ores and minerals etc. were much higher.
• When a country like India starts developing more, in the decades of seventies and eighties imports of food grains tends to fall and exports of primary goods tends to fall and that of industrial goods tends to rise.
• After 1991, the nature of exports and imports changed significantly in India. Imports of food grains, other agricultural goods and capital goods declined in total imports. Whereas the export of traditional goods declined and that of industrial goods and non-traditional items increased.
• In 2014-15, India attained self-reliance in grains and other food items. India’s merchandise imports was reduced to 9.8 % while due to diversification in the development process import of new goods increased to 46.5 %.
• The nature of exports has also changed. India’s merchandise exports of primary goods reduced to 12.3% in 2014-15. Likewise export of leather products declined to 1.3%, that of textile goods to 2 %, ready-made garments increased to 5.4 %, manufactured products increased to 66.7 % and petroleum products increased to 18.5 % during the same period.

3. Direction of India’s Foreign Trade:

• Direction of foreign trade means the trade relation of a nation with various countries of the world.
• Before independence large proportion of our trade was with England.

England: 1960-61: 19% imports of total imports

• After 2007: Fell to less than 2 % 1960-61:26.8% exports of total exports
• After 2007: Reduced to 4 %

USA: 1960 -61:29% imports of total imports

• After 2007: Fell to less than 8 % 1960-61: 16% of total exports
• After 2007: Fell to 12.7%

OPEC: Due to industrialization and development imports of petroleum increased.

• 1960-61: Merchandise export was 4.1%
• After 2007: Increased to over 16 %

Russia:

• Our imports from Russia were high. Which declined since 1980 after the economic crisis in Russia.
• Total merchandised exports declined from 4.5 % to 0.6 % after 2007.

Developing countries: 1960 – 61: Imports were 11.8%,

• After 2007: Increased to 32 %
• 2014 – 15: Increased to 59 %
• 1960-61: Exports were 14.8%
• After 2007: Increased to 42.6 %

Thus, India has made successful attempts to its trade with different countries and in different directions.

Concept of Balance of Payments:
Balance of Payments: An accounting statement showing the value of imports and exports of tangible (visible) and intangible (invisible) goods during a year is called balance of payments.

Types of Balance of Payments:
1. Balanced: When the value of entries on credit side equals that on debit side, then balance of payment is said to be in balanced.

2. Unbalance: When the value of entries on credit side, is not equal to entries on the debit side, then balanced of payment is said to be in unbalanced.

• Surplus In the balance of payments:
If receipts are more than payments or value of entries on credit side is greater than the value of entries on debit side, then there is surplus in the balance of payments.
• Deficit In the balance of payments:
If receipts are less than payments or the value of entries on credit side is less than the value of entries on debit side, then there is deficit in the balance of payments.

Accounts of Balance of Payments:
1. Current Account: In this account the credit and debit entries of following are recorded:

• Trade in merchandise goods (tangible goods) and
• Trade in intangible goods (services).

2. Capital Account: In this account receipts and payments from transactions on assets like bonds, shares, gold, capital loan, etc. are recorded.

Factors Influencing Balance of Payments:

• Exchange rate,
• Prices of tradable goods in home country and in foreign countries,
• Variety and quality of tradable goods
• Inevitable imports,
• Level of economic development of the country,
• Legal restrictions on trade and
• Trade supporting facilities like transport, communication, etc.

Concept of Exchange Rate:
The rate at which the currency of one country can be converted into currency of another country is called exchange rate, e.g., $1 = ₹ 65 means to buy$ 1 of US, an Indian resident must pay ₹ 65.

• A rise in the exchange rate for India means the value of Indian currency has declined in the international market.
• A fall in the exchange rate for India means the value of Indian currency has increased in the international market.
• If the exchange rate rises for India, then imports by India tends to decline and India’s exports tend to rise.