Parameters of a country’s external trade are determined by several factors both domestic and international. They include, for example, the stage of its economic development, the nature and composition of its national income, its policy and strategy with regard to its external sector, the stance (protectionist or otherwise) of its trading partners, and so on.
It is also noteworthy that, since the end of World War II, the international world economic order has been undergoing a restructuring under diametrically opposite pulls.
On the one hand, it is increasingly incorporating features of a rule-based world trade and globalisation, and on the other, regional trading blocs, preferential treatment and protectionist tendencies are gaining strength.
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The evolution of India’s external trade amply reflects the impact of all the developments, both international and domestic, described above.
Consequently, its current volume and composition have shown impressive changes over the position obtaining at the time of Independence.
The impact of the above- mentioned developments are also visible when we compare the trends in our merchandise trade with those in the invisibles, and current and capital accounts.
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For example, in earlier stages, merchandise exports and imports dominated the current account portion of our balance of payments with only a marginal role for the invisibles.
Even within merchandise trade, our typical exports were primary products with high bulk/value ratios. Also, contrary to expectation, these primary exports were typically non-food ones.
The reasons for this lay in very low productivity of our agricultural sector coupled with growing food needs of our own population. For most farmers, agriculture, instead of being a commercial venture, was only a subsistence occupation meant for producing food for self-consumption.