3rd Five Year Plan
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Chapter 8:
DEVELOPMENT OF FOREIGN TRADE

REVIEW OF IMPORTS

Over the past decade, plans of economic development have exerted increasing influence on the country's foreign trade, in particular, on imports. With the growth of industrial production and the development of the economy as a whole, the level of imports has risen substan-tia'ly over the last decade. Over the First Plan period the total imports amounted to Rs. 3620 crores or an average of Rs. 724 crores a year. In the Second Plan there was a sizeable step-up in the level of imports on account of the larger requ'rements of capital goods, raw materials, intermediate products, components, etc. During the first two years of the Plan imports rose sharply—from Rs. 745 crores in 1955-56 to Rs. 1099 crores in 1956-57 and to Rs. 1233 crores in 1957-58. Total imports declined in the two following years, a level of Rs. 920 crores being recorded for 1959-60. This decline in imports resulted from the tightening up of import licensing which the country had to follow in face of the foreign exchange difficulties. Imports in the last year of the Second Plan are estimated at around Rs. 1080 crores. For the Second Plan period as a whole, aggregate imports are estimated at Rs. 5360 crores—an annual average of Rs. 1072 crores, which is about 50 per cent higher than the average level for the First Plan. The following Table gives the annual average for imports of three main categories of goods during the First and the Second Plans :

Table 1 Imports 1951—61
(Rs. crores)

category 1951—56 annual average 1956—61 annual average
consumer goods 235 247
raw materials and intermediate-goods 364 502
capital goods 125 323
total 724 1072

2. The Third Plan with its larger investment programme and continued priority for the development of basic and heavy capital goods industries entails even larger import requirements than the Second Plan. Payments for imports of machinery and equipment for Plan projects are expected to amount to Rs. 1900 crores. It will be necessary, in addition, to provide for imports of components, balancing equipment, etc. of the order of at least Rs. 200 crores for increasing the domestic output of capital goods and equipment. Provision is being made for imports of raw materials intermediate products, capital goods for replacement, essential consumer goods, etc., for the maintenance of the economy to the extent of Rs. 3550 crores, although the requirements of such imports for securing adequate utilisation of industrial capacity are considered to be distinctly larger. The total import bill for the Third Plan is thus estimated at Rs. 5750 crores in addition to P.L. 480 imports of the order of Rs. 600 crores. The average level of imports, inclusive of P.L. 480 imports, during the Third Plan period thus comes to Rs. 1270 crores, as compared with an average level of Rs. 1072 crores during the Second Plan.

3. The estimate of requirements of maintenance imports takes into account the savings in imports that are expected to arise as a result of larger outputs from projects which have already been commissioned or will be com-miss^ned in the course of the Third Plan period. These savings also reflect the increases in the production of agricultural commodities during the Plan period. The principal savings anticipated are in respect of commodities such as raw cotton, mild steel, aluminium, various categories of machinery and transport equipment, drugs and chemicals, paper and paper-board, etc. The savings will, however, be offset in part by the larger requirements of imports of certain other categories of goods, notably, special steels, non-ferrous metals other than aluminium, petroleum products, fertilisers, etc.

In view of the difficult balance of payments position during the Thial Plan period, the present system of foreign exchange budgeting and import licensing will be continued and improved upon further.

REVIEW OF EXPORTS

4. Over the past decade, on the whole India's exports have been stagnant. The First Plan annual average of Rs. 609 crores might have been smaller but for the exceptionally high exports in 1951-52 on account of the war in Korea, while the Second Plan average of Rs. 614 crores would have been higher but for the recession in 1958 in U.S.A. and Europe. In volume, exports were higher in the Second Plan bv 9 per cent but, on account of less favourable unit values, this increase was not reflected in larger export earnings. The trends during the period 1951-52 to 1960-61 may be seen from the Table below :

5. Economic development within the country increased domestic demands and reduced the surpluses available for exports. Thus. over the decade, while the total world export trade doubled, India's share in it declined from 2.1 per cent in 1950 to 1.1 per cent in 1960.

Table 2 Exports 1951—61 (based 1950-51=100)
(value in Rs. crores)

year value volume index unit value index year value volume index unit value index
1951-52 733 80 148 1956-57 620 101 98
1952-53 577 89 104 1957-58* 591 96 98
1953-54 531 89 96 1958-59 559 94 97
1954-55 593 94 102 1959-60 644 105 98
1955-56 609 103 94 1960-61 645 n.a. n.a.
total 3043     total 3069    
average 609 91 109 average 614 99 98

6. In the pattern of export trade over the past decade, two main trends could be observed. Firstly, among commodities which are directly or largely based on agricultural production (which still account for the bulk of India's exports) such as tea, cotton textiles, jute manufactures, hides and skins, spices and tobacco, on the whole exports did not improve. However, significant increases were achieved in the exports of new manufactures and of products like iron ore, but these were not sufficient to offset the decline in the traditional exports. These trends may be seen from the following Table :

Table 3 Pattern of exports 1951—60
(Rs. crores)

  1950-51 1955-56 1958-59 1959-60
1. agricultural commodities and related manufactures 496.5 489.3 453.5 473.6
cotton and jute manufactures (included in item 1) 2505 181 -7 153.4 180-5
2. other manufactures new manufactured products (included in item 2) 58-4 8-9 61.0 8-6 53-3 12-5 105-0 25-0
3. minerals 23-4 34 -4 46-2 53-0
total 578 -3 584-7 553-0 631 -6

* Net of silver experts.; leverage for four years.
Note.—Statistics in Tables 2 ,3 and 4 in this Chapter are based on data published by the Director General of Commercial Intelligence and Statistics.

7. In recent years and, more especially since the middle of the Second Plan period, a series of measures have been initiated with the object of stepping up exports. It is possible that but for these efforts exports during recent years might have been lower. The measures in question were fairly widely conceived and included organisational changes, increased facilities and incentives and diversification of trade. To the first group belong Export Promotion Councils, which have been set up for cotton textiles, silk and rayon, engineering goods, chemicals, tobacco, spices, cashew, leather, plastics, sports goods and mica; establishment of the Export Risks Insurance Corporation; assignment to Commodity Boards for tea, coffee and coir of the duties of Export Promotion Councils; and increased facilities for publicity, fairs, exhibitions etc. In the second group may be mentioned measures such as removal of export controls and quota restrictions, abolition of most export duties, refund of excise duties, special import licences for raw materials for exports, and priorities for transport facilities. Thirdly, through the activities of the State Trading Corporation and development of trading relations with USSR and countries in Eastern Europe, there has been progress in the diversification of India's foreign trade.

DIRECTION OF TRADE

8. The following Table brings out changes in the direction of India's foreign trade during the First and Second Plan periods :

Table 4 Direction of India's foreign trade
( per cent shares)

country/area exports imports
1952 1956 1960 1952 1956 1960
1. ECAFE countries 25-7 16-3 17-0 13-6 12-4 13-1
Japan 4-1 4.9 5-5 2-4 5-2 5-4
2. V/est Asia 5-7 5.0 0 6-5 7-7 10-8 7-5
3. Africa 3-6 3-9 2-5 3-8 4-0 4.4
4. Western Europe 29-6 39-8 38-5 30-1 50-1 40-4
U.K. 20-5 29-8 27'5 18-5 25-0 20-0
European Economic Community 7.5 8-3 8-0 8-8 20-0 18-0
5 Eastern Europe and China 1.3 3-5 8-0 2-2 4-2 3-7
6 North America 21.1 17-0 18-7 37-3 12-4 25-2
U.S.A. 19.0 14-7 16-0 33-6 11-3 23-7
7 Latin America 1-4 1-0 2-5 0.1 0-1
Oceania 4-3 4-4 3-1 2-0 1-7 2-3
9 others 7-3 8-3 3-3 3-3 4-3 3-3
total 100-0 100-0 100-0 100-0 100-0 100-0

At present Western Europe accounts for nearly 39 per cent of India's export trade, U.K. taking 28 per cent of the exports. The share of U.K. has remained more or less constant at this level for a number of years. The share of North America declined from 21 per cent in 1952 to 17 per cent in 1956, but increased in 1960 to 19 per cent of the total exports. Exports to ECAFE countries have been relatively static in recent years. The increased exports to Japan are accounted for largely by iron ore exports.

The European Economic Community's share has fluctuated between 6.3 and 9.5 per cent over the past ten years. The share of USSR and countries in Eastern Europe has increased from about 1 per cent during the first half of the First Plan to more than 8 per cent towards the end of the Second Plan.

9. Imports from Western European increased during the First Plan from 30 per cent to 50 per cent; the region accounted for nearly 40 per cent of India's imports at the end of the Second Plan. Imports from Eastern Europe increased from 2.2 per cent in 1952 to 4.6 per cent in 1956, but declined to 3.7 per cent in 1960. Imports from North America, which accounted for 37 per cent of the total in 1952 declined to 12.4 per cent in 1956, but increased again to 25.7 per cent in 1960, the variation being due mainly to food imports. Imports from ECAFE countries have fluctuated between 12 to 14 per cent during this period.

EXPORT OBJECTIVES IN THE THIRD PLAN

10. If the measures for expanding exports which have been taken so far are considered in relation to the underlying factors inhibiting exports, they cannot be said to have been adequate. One of the main drawbacks in the past has been that the programme for exports has not been regarded as an integral part of the country's development effort under the Five Year Plans. If a substantial increase in exports is to be achieved, action has to be taken along several directions, in particular, the following ;

  1. domestic consumption must be held within reasonable limits with a view to creating the surpluses for exports;
  2. in view of the increasing profits which can be earned in the domestic market once an economy begins to develop, steps to increase the comparative profitability of exports are essential;
  3. in their cost structure and productivity the principal industries, specially the export industries, must become competitive as early as possible, and a systematic programme to this end has to be pursued within each industry. This is an essential condition for diversifying exports and for steadily increasing the share of new manufacturers and minerals in the export trade. Industrial licensing policies should also be oriented towards export promotion; and
  4. steps must be taken to mobilise public opinion in favour of exports and acceptance of the burdens involved, to enlist the cooperation of industry and trade in this national effort, to improve Government's own organisation for market research and intelligence and commercial representation abroad, and to enlarge facilities for credit, insurance, etc.

11. The foreign exchange requirements for the Third Plan have been analysed in the Chapter on Financial Resources. It is clear that if exports over the Third Plan period do not increase significantly beyond the figure of Rs. 3450 crores indicated in the Draft Outline, even if the external aid which has been assumed were forthcoming, there would be quite serious shortfal's in the Plan. Accordingly, on the basis of commodity and other studies which have been undertaken and assuming a large-scale effort to increase exports and reasonably favourable conditions of demand abroad, exports over the Third Plan period have been taken at Rs. 3700 crores. The effort and the planning will in fact have to be distinctly larger in magnitude. An important reason for stressing new and far reaching measures and policies for increasing exports during the Third Plan is that this is the period in which exports must be built up in order to meet the much larger requirements anticipated for the Fourth Plan. Considering the requirements on account of repayment obligations abroad and maintenance and development imports, it is estimated that by the end of the Fourth Plan the annual level of exports would have to rise to about Rs. 1300 crores to Rs. 1400 crores, that is, to at least twice the present level. This is itself one of the essential conditions for ensuring that India's economy becomes self-reliant and self-sustained by the Fifth Plan.

12. It is against this background that the objective of achieving export earnings of not less than Rs. 3700-3800 crores over the Third Plan has been set. If exports rise to the extent envisaged, the annual level of exports over the Third Plan should rise by about Rs. 200 crores and the average annual exports for the Third Plan period should be about Rs. 150 crores above the average during the Second Plan period.

MEASURE FOR EXPANDING EXPORTS

13. Proposals for bringing about a marked increase in exports fa'\ broadly under two groups, namely, general policies and measures relating to specific commodities. A number of these measures are intended to produce results over a short period of two or three years. At the same time, other measures aiming at raising efficiency and lowering costs must be pushed forward to the farthest extent possible. The primary object of the general policies envisaged in support of the export programme is to create the necessary c'imate in the cou^rv for the export effort, to restrain domestic demands and enlarge surpluses available for exports, and to reduce production costs. It is reah'sed that beyond a point action designed to increase exports will inevitably have certain repercussions on the domestic economy or on other sectors of development. Obviously, the choice is a difficult one but, having reeard to the overall national interest, the highest possible priority has to be given to exports, and larger burdens within the domestic economy have to be accepted for the next 10 or 15 years as a price which must be paid for rapid economic development.

14. By far the most important condition for fulfi'ling the programme for exports is obviously the realisation of the agricultural and industrial targets of the Third Plan. If these were to fall short, measures which might otherwise be feasible, would become much less so.

15. Restraints on the growth of internal consumption are an essential condition of a successful export drive. They have to be resorted to where supplies are insufficient for meeting both home and foreign demands. They have also to be adopted where supplies could be increased through larger investments so as to save on internal resources as well as foreign exchange. The rate of development of the economy would be more than proportionately enhanced through the additional exports which restraints on consumption could facilitate. As a rule, what is required is not absolute reduction in the total or the per capita consumption but only a slowing down in the rate at which consumption increases. In taking these and other measures it is of course essential that there should be greater public understanding of the need to step up exports and recognition that this obiect cannot be achieved without a degree of sacrifice which is equitab^y shared.

16. For achiev'ng the export obiectives, it is necessary not only to create the surpluses for exports, but also to ensure that the surpluses become available at prices competitive with those of other suppliers in markets abroad. Competitive export capacity depends largely on internal prices. From this point of v'ew it is vital that inflationary pressures associated with development should be held in check.

17. For developing the export effort it is essential that a considerable part of Ind'a's industry should become much more competitive than it is at present. It is true that over a significant range of products Indian industry is capable of competing in export markets or, at any rate, of beconr'ng reasonably competitive. However, the range of these industries is not large enough at present. Study groups have been recently set up to consider ways of reduct-ing costs in certain selected industries such as cement, jute, bicycle, electric motors and transformers and rayon. It is proposed to review the more important cost studies undertaken for d'fferent industries in recent years with tlie object of working out the lines along which programmes for cost reduction could be pursued systematically industry by industry. It is visualised that in industries which are significant for developing exports, licensing policies should take due account of the economies of scale. This factor should also be given weight in determining the location of individual units.

In these industries the level of costs has overriding importance and national interest requires that this consideration should receive precedence over certain other considerations which have normally to be kept in view in the scheme of planned development.

18. Rapidly growing internal demands have the effect of making sales in the domestic market relatively more profitable than in foreign markets. Within limits and over short periods, it may be necessary to consider fiscal measures designed to correct this trend. Naturally, details of these measures have to be considered from time to time in the light of the actual situation in different industries.

19. In view of the scarcity of foreign exchange, there has to be a clear priority in its allotment in favour of industries producing for exports or providing a substantial surplus for exports. Wherever feasible, it is hoped to work out each year in consultation with individual industries the quantities which they should endeavour to make available for exports. In some cases, to secure the surpluses indispensable for exports, it might be necessary to set physical limits to the total internal sales of individual manufacturing units, so that the rest of their production becomes available for exports. Enterprises in the public sector should also give a lead in the export effort by earmarking part of their output for export and taking suitable steps to effect sales abroad.

20. Export Promotion Councils should play a leading role in studying overseas markets and maintaining up to date intelligence. It is also hoped to strengthen the existing arrangements for enabling India's commercial representatives in foreign countries to provide adequate intelligence regarding overseas markets and to make these available to Indian industry and trade and, generally, to promote the country's foreign trade as intensively as possible.

21. Experience of State trading in recent years suggests that State trading organisations could play an important role in developing exports. Exports through cooperative organisations should be encouraged. It is also proposed to support the efforts of private export houses.

22. These are the broad lines along which it is proposed to develop the export effort for the Third Plan. Naturally, this will involve action over a wide field and decisions will have to be taken from time to time in respect of specific commodities. Some of these will involve the levy of excise duties; in others, it might be necessary to assure larger resources for development during the Third Plan. It would also be essential to try to increase invisible earnings, especially through tourism and shipping, and to facilitate foreign private investment.

23. Diversification of exports and the development of new export markets should be viewed as part of a wider effort to enlarge the country's foreign trade and expand commercial and economic relations with other countries. In the coming years special attention should be given to the development of close economic relations with other developing regions, notably South and South East Asia, West Asia, Africa, South America and West Indies. These countries will need capital goods and components and raw materials for their economic development and mutual possibilities of developing trade with them should be vigorously explored. Exports to the European Common Market countries also need special attention since a high proportion of India's trade deficit is with them. With United Kingdom, India has long enjoyed close trading ties which should be further strengthened in view of the growth of India's own productive capacity and changing economic structure. India's commercial transactions with USSR and countries in Eastern Europe are on a balancing basis and trade with these countries should increase significantly over the next few years. Trade with Yugoslavia has already expanded steadily and there is considerable scope for widening economic relations with it. North America and, in particular, U.S.A. provide about one-fourth of the country's imports. Their growing economies and high living standards offer large possibilities for the development of foreign trade and specially of exports. Thus, as the pace of India's economic progress increases and she is able both to offer and to receive more, she becomes part of an ever expanding world economy, in which growing cultural and economic relations enrich the life and strengthen the economies of all nations.

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