International Trade

Written and reviewed by Subhra Gupta, Humanities faculty at UniDrill (M.A. Sociology, University of Delhi · 7 years teaching Humanities). Based on NCERT Geography Class XII (India: People and Economy), Chapter 8.

Why does India always buy more than it sells?

In 1950-51 India's external trade was worth Rs 1,214 crore. In 2020-21 it was Rs 77,19,796 crore, about 6,360 times larger. Yet in almost every year you can check, the value of what India imports is higher than what it exports. This chapter explains what India trades, with whom, and through which gateways. Questions on ports alone can fill a whole section of the CUET paper, so treat the port tables as a map you must be able to rebuild from memory.

The big picture: three things changed

India's trade has changed in three ways: volume (how much), composition (what is traded) and direction (with whom). Trade is mutually beneficial because no country is self-sufficient, and although India accounts for only about one per cent of world trade by volume, it plays a significant role in the world economy.

Three forces pushed trade up: the momentum of the manufacturing sector, liberal government policies and the diversification of markets. Remember these three, as a "what caused the rise in India's overseas trade" question is easy to set.

The trade balance: a deficit that keeps growing

The trade balance is the value of exports minus the value of imports. For India it is negative in every year in the table below, so the country has a trade deficit.

Reading the table. Both exports and imports rose, so the deficit is not a sign that trade is shrinking. It is a sign that imports rose faster. Notice that between 2016-17 and 2021-22 the deficit nearly doubled, from Rs 7,25,082 crore to Rs 14,25,753 crore. Also notice that the deficit dipped between 2013-14 and 2016-17, so it did not rise in a straight line.

Beyond the textbook. For the exam: India has a persistent trade deficit, because the value of imports stays above the value of exports. In reality: this figure counts only goods. India also sells services such as software and business support abroad, and receives money sent home by workers overseas. These flows soften the overall balance of payments. Why it matters: a large goods deficit does not by itself tell you the whole external position of the economy.

What India sells: the export basket

The share of agriculture and allied products and of manufactured goods has fallen in recent years, while crude petroleum and products and other commodities have gained. The share of ore and minerals has stayed small and has largely remained constant.

Manufactured goods alone made up 67.8 per cent of export value in 2021-22. In rupee terms the principal export items for that year were:

Why the shares shifted. Within manufacturing, engineering goods have shown significant growth, while gems and jewellery contribute a large share of foreign trade. China and other East Asian countries are India's main competitors. Among farm products, traditional items such as cashew have declined because of tough international competition, but floricultural products, fresh fruits, marine products and sugar have increased.

Pause and predict: manufactured goods are still the biggest export group, yet their share fell from 72.9 to 67.8 per cent while total exports rose. How can a share fall while the value rises?

Check your answer: a share compares one group with the total. If another group (here crude and petroleum products, up from 11.9 to 16.4 per cent) grows faster, the total grows faster than manufacturing, and manufacturing's share shrinks even if its rupee value goes up. NTA tests this by offering "share rose because exports rose" as a distractor.

What India buys: the import basket

The story in one line: food shortage in the 1950s and 1960s → foodgrain and machinery imports → Green Revolution ends foodgrain imports → 1973 energy crisis raises petroleum prices → fertilisers and petroleum fill the gap.

In the 1950s and 1960s the major imports were foodgrain, capital goods, machinery and equipment, and the balance of payments was adverse in spite of efforts at import substitution (producing at home what was earlier bought abroad). After the 1970s the success of the Green Revolution ended foodgrain imports. The 1973 energy crisis then pushed up petroleum prices and the import budget. Today machinery and equipment, special steel, edible oil and chemicals largely make up the basket, along with pearls and precious and semi-precious stones, gold and silver and non-ferrous metals.

Petroleum is used not only as a fuel but as an industrial raw material, so the rising import of petroleum products reflects the tempo of rising industrialisation and a better standard of living. Sporadic price rises in the international market push the figure up further.

The ranked list below is a favourite for "arrange in descending order" questions.

Beyond the textbook. For the exam: petroleum, oil and lubricants is India's largest import, and crude petroleum and products is also an export group (16.4 per cent of exports in 2021-22). In reality: the two figures describe different things. India buys crude oil abroad, refines much of it at home and sells refined products to other countries, so the same commodity family sits on both sides of the ledger. Why it matters: if a question shows petroleum in the export table, it is not an error.

Why does a farming country import edible oil? The textbook leaves this as a thinking question. The honest answer is that domestic oilseed output has not kept pace with the demand of a large and growing population, so a gap is filled by imports. Note it as a reasoning point, not as a number to memorise.

Direction of trade: who India buys from

India trades with most countries and major trading blocs. The textbook gives import figures by region.

Asia and ASEAN supply roughly two-thirds of the imports counted in this table, and Europe is a clear second. North America and Africa are close to each other in 2021-22, with North America slightly ahead. Most of India's foreign trade moves by sea and air. A small portion goes by land to neighbouring countries such as Nepal, Bhutan, Bangladesh and Pakistan.

India aims to double its share in international trade within five years, and has adopted measures such as import liberalisation, reduction in import duties, delicensing and a change from process to product patents.

Pause and predict: which region's imports grew by the largest factor between 2016-17 and 2021-22, Asia and ASEAN or North America?

Check your answer: North America. Its imports grew from Rs 1,95,332 crore to Rs 3,78,041 crore, almost 1.94 times, while Asia and ASEAN grew about 1.89 times. Asia is the biggest by value, but the question asks about growth, and size and growth are different things.

Sea ports: the gateways

India has sea on three sides and a long coastline, and water gives a smooth surface for very cheap transport when there is no turbulence. A long tradition of seafaring left many place names ending in pattan, meaning port. An interesting fact is that the west coast has more ports than the east coast.

Why the two coasts differ. The west coast has estuaries and inlets that give sheltered natural harbours (Mumbai, Mormugao, Cochin). The east coast is smoother and shallower, with silt carried down by rivers, so its harbours are more often built or dug: Chennai is an artificial harbour and Visakhapatnam is reached through a channel cut through rock and sand.

How ports became important. Ports became gateways of trade after European traders arrived and the British colonised the country. The British used ports as suction points to draw resources from their hinterlands, and railways towards the interior linked local markets to regional, national and then international markets. Partition then cost India Karachi and Chittagong.

Major and minor ports. India has 12 major ports and about 200 minor or intermediate ports.

Private entrepreneurs have been invited to help modernise ports. The capacity of Indian ports rose from 20 million tonnes of cargo handling in 1951 to over 837 million tonnes in 2016.

Hinterland. The hinterland of a port is the inland area it serves, supplying its exports and receiving its imports. Its boundary is hard to mark because it is not fixed over space, and the hinterland of one port often overlaps with that of another.

West coast major ports

East coast major ports

Why satellite ports exist. A satellite port is a new port built close to a crowded one to take some of its load. Jawaharlal Nehru Port relieves Mumbai, Haldia relieves Kolkata, and Kamarajar (Ennore) and Tuticorin relieve Chennai. Kandla was built to relieve Mumbai and Vadinar is an offshore terminal that eases pressure at Kandla.

Why Kolkata declined. Two causes work together: exports have been diverted to Visakhapatnam, Paradwip and Haldia, and silt keeps accumulating in the Hugli, the river that links the port to the sea.

Beyond the textbook. For the exam: Jawaharlal Nehru Port is the largest container port and Mumbai is the biggest port. In reality: containers are standard steel boxes that need deep water, large yards and fast cranes. A crowded old port in the middle of a city has little room for such yards, which is the practical reason a satellite port on open land across the water is a sensible solution. Why it matters: the "satellite port" idea is a reasoned answer to congestion, not just a name to memorise.

Pause and predict: a company in Raipur (Chhattisgarh) wants to export iron ore on the east coast. Which port is the textbook's answer?

Check your answer: Paradwip. Chhattisgarh lies in its hinterland, and the port has the deepest harbour for very large vessels and was developed mainly for large scale iron ore export. Distractor ports such as Chennai fail because of shallow waters and a different hinterland.

Airports and the UDAN scheme

Air transport takes the least time and suits high value or perishable goods over long distances. It is very costly and unsuitable for heavy and bulky goods, so air takes a smaller share of international trade than ocean routes.

Twenty-five major airports were functioning (Annual Report 2016-17): Ahmedabad, Bengaluru, Chennai, Delhi, Goa, Guwahati, Hyderabad, Kolkata, Mumbai, Thiruvananthapuram, Srinagar, Jaipur, Calicut, Nagpur, Coimbatore, Cochin, Lucknow, Pune, Chandigarh, Mangaluru, Visakhapatnam, Indore, Patna, Bhubaneswar and Kannur.

Since 2017, under the UDAN scheme, 73 unserved or underserved airports, including 9 heliports and 2 water aerodromes, have been operationalised. Air routes converge most at Delhi, Mumbai, Kolkata and Chennai, because these are the largest metropolitan hubs.

Key terms

Exam traps

60-second revision

Where this chapter connects

• World view: International Trade (World) gives the global background (bases, types and patterns of trade) that this chapter applies to India.
• Gateways: Transport and Communication (India) covers the railways, highways, ports and air routes behind each port's hinterland.
• Raw materials: Mineral and Energy Resources explains the iron ore and petroleum that dominate the port cargo lists.
• Policy: Planning and Sustainable Development in Indian Context places liberalisation and import substitution in the story of development planning.