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Trade & Export Policy and External Sector

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Trade & Export Policy and External Sector

October, 2014


The trade and external sector of a country plays an important role in its economic development, as it is responsible for integrating the domestic economy through the twin channels of trade and capital flows. Indian markets have been the best performing markets among emerging market peers so far in the year 2014, according to a recent study.

In the past two years, the Indian economy has grown from US$ 500 billion to US$ 2 trillion and the trade and external sector has had a big role to play in this development. The Indian government is keen to improve on exports and provide more jobs for the young, talented, well-educated and even the semi-skilled and unskilled people of the country.

Capital Inflows

India's foreign exchange (Forex) reserves stood at US$ 318,579.8 million as on August 29, 2014. Foreign currency assets aggregated to US$ 291,318.2 million and the value of gold reserves stood at US$ 21,173.8 million, as on August 29, 2014, according to the weekly statistical data released by Reserve Bank of India (RBI).

Foreign Direct Investments (FDI)

India received total foreign investment (including equity inflows, 're-invested earnings' and 'other capital') worth US$ 341,357 million in the period April 2000 - August 2014 and a cumulative amount of US$ 229,595 million during the same period. The country was one of the top destinations for FDI inflows from Asian countries, with Mauritius contributing 36 per cent and Singapore 12 per cent; the UK contributed 9 per cent of the total foreign inflows in the mentioned period.

Foreign Institutional Investors (FIIs)

The total number of FIIs registered in India was 1,710 in FY14. The net investments by overseas investors into India so far this year has reached US$ 30 billion, while their cumulative total inflows into the country has crossed the US$ 200 billion mark.

The net investments by foreign investors into Indian debt markets since the beginning of 2014 have reached US$ 17 billion, while the same for equities stand around US$ 13 billion.

Buoyed by the steps taken by the central government, FIIs have started investing more in India in the past few months. Foreign investment inflows are expected to more than double to touch US$ 60 billion this fiscal, as per an industry study.


According to data released by Ministry of Commerce, exports from India during July 2014 were valued at US$ 27727.60 million which was 7.33 per cent higher than the US$ 25835.08 million achieved during July, 2013.

The top five countries receiving Indian exports in the period April-July 2014 are the USA, UAE, Saudi Arab, Hong Kong and China. The value of exports to USA amounted to US$ 14,261.85 million, which is an increase of 8.16 per cent over the same period in 2013.

India's sugars and sugar confectionery exports for the month of July 2014 has grown to US$ 70.79 million, which is an increase of 15.6 per cent over the previous month, according to industry data. This growth can be attributed to the developments in the field of agriculture in the country in the recent past.

According to Engineering Export Promotion Council (EEPC), India's engineering exports have shown remarkable year-on-year (y-o-y) growth, ranging from 100-150 per cent in July, 2014. Similarly, for the April-July period, the engineering goods exports to Turkey have grown by 106 per cent to US$ 638 million from US$ 309 million.

External Sector

The Prime Ministers of India and Japan after their Annual Summit meeting issued a joint statement to further enhance cooperation in several fields such as infrastructure, railways and agriculture, among others. Japan also plans to double its investments in India in the next five years from around US$ 2 billion last year.

China is seeking to prop up its investments in India and has planned to invest over US$ 5 billion in two industrial parks in Gujarat and Maharashtra with a focus on automobile manufacturing and power transmission and generation equipment manufacturing respectively.

In a boost to India's nuclear power industry, Mr Tony Abbott, the Prime Minister of Australia, is expected to sign an agreement to sell uranium to India. This move is slated to help both the countries as Australia has high uranium reserves which it exports, while India depends on imported fuel for its 20 nuclear reactors.

Argentina has given full access of its US$ 6 billion drug market to Indian companies. This has increased the scope of exports to finished pharmaceuticals formulations from just raw materials earlier.

The Ministry of Railways, Government of India, signed a memorandum of understanding (MoU) with Czech Railways (Ceske Drahy), Czech Republic, for technical cooperation in the field of railways. The MoU is valid for a period of three years which can be extended further for successive periods of one year at a time.

Foreign Trade Policy

India has signed a Comprehensive Economic Partnership Agreement with South Korea, which will give enhanced market access to Indian exports as part of the Foreign Trade Policy's (FTP) strategy of market expansion. These trade agreements are in line with India's Look East Policy.

To help exporters get into long-term contracts, the RBI has simplified the rules for credit to exporters. This will now enable them to get long-term advance from banks for up to 10 years to service their contracts. It will also aid the overall export performance and help the rupee in the short to medium term.

All exports and import-related activities are governed by the FTP, which is mainly aimed at enhancing the country's exports and use trade expansion as an effective instrument of economic growth and employment generation.

The Government of India is expected to announce the new five-year FTP (2014-19) as it seeks to boost manufacturing and exports, among other things. The Federation of Indian Export Organisation (FIEO) has called for more focus on export of services and hi-tech products in the new policy.

Road Ahead

Boosted by the forthcoming FTP, India's exports are expected to cross the US$ 350 billion mark in 2014-15 and reach US$ 750 billion by 2018-19 according to FIEO. Also, with the Government of India striking important deals with the governments of countries such as Japan, Australia and China, the external affairs sector is contributing heavily to the economic development of the country and growth in the global markets. Moreover, by implementing the FTP 2014-19, India's share in world trade is expected to double from the present level of three per cent by the year 2020.

Exchange Rate Used: INR 1: US$ 0.0163 as on October 28, 2014.

References: Department of Industrial Policy and Promotion (DIPP), Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade