Foreign Trade

Subject: Economy | Unit: Sectors | Topic: Foreign Trade Exam: AP Group 2 (APPSC)

Introduction

Foreign trade connects India to the global economy through exports and imports of goods and services. India's total exports (goods + services) reached $790.86 billion in FY 2025-26 (Apr-Feb), with a merchandise trade deficit of $310.60 billion partially offset by a services surplus of $200.96 billion. India follows a managed float exchange rate system, with the RBI intervening to prevent excessive volatility. Understanding the Balance of Payments framework, trade policy instruments, key export/import items, and India's trade agreements is essential for AP Group 2. The Current Account Deficit remains manageable at approximately 1-2% of GDP, supported by remittances of ~$125 billion — making India the world's largest remittance recipient.

Economic Context

India's trade policy has evolved from import-substitution (pre-1991) to export-oriented liberalization. The 1991 reforms dramatically reduced tariffs (peak customs duty from 300%+ to under 15%), removed quantitative restrictions, and opened sectors to foreign investment. India joined the WTO as a founding member in 1995. The Foreign Trade Policy 2023 operates on a dynamic, open-ended basis. India has signed CEPAs with Japan, South Korea, UAE, and Australia, while pursuing FTAs with the UK, EU, and Canada. India opted out of RCEP in 2019 over concerns about Chinese goods.

Core Content

Basic Concepts

Balance of Payments (BoP) Structure

Formula: BoP = Current Account + Capital Account + Errors & Omissions = 0 (must balance)

India's Trade — Latest Figures (FY 2025-26, Apr-Feb)

India's Global Trade Position (2024)

Major Export Items

Major Import Items

Trade Policy Framework

Trade Agreements

Current Account and BoP

Exchange Rate

AP Connection

• AP ports play a significant role in India's foreign trade:
  • Visakhapatnam Port: 5th busiest major port; natural deep-water harbor
  • Gangavaram Port: one of deepest ports in India (21m draft)
  • Krishnapatnam Port: one of India's largest private ports (Nellore)
  • Kakinada Port: serves East Godavari industrial belt
• AP has ~974 km coastline (2nd longest among Indian states)
• AP produces 40%+ of India's shrimp exports — major forex earner
• Pharma exports from JNPC Vizag contribute to India's pharmaceutical export strength
• Kia Motors at Penugonda contributes to India's automobile export growth
• SEZs in AP: Sri City, Vizag IT SEZ, Brandix Apparel City contribute to exports
• AP attracts FDI through Global Investors Summit and incentive policies
• Ports handle coal, iron ore, fertilizers, petroleum, containers

Key Points Summary

1. Balance of Trade = Merchandise Exports - Merchandise Imports
2. Balance of Payments = Current Account + Capital Account (must balance)
3. Total exports FY 2025-26 (Apr-Feb): $790.86 billion (5.79% growth)
4. Merchandise trade deficit: $310.60 billion; services surplus: $200.96 billion
5. India's share in global merchandise exports: 1.8%; ranked 18th in exports, 9th in imports
6. Top export destinations: USA, UAE, Netherlands, China, UK
7. Top import sources: China, UAE, USA, Saudi Arabia, Russia
8. Crude petroleum is the single largest import; India imports ~85% of oil needs
9. India processes 90% of world's diamonds (gems & jewellery exports)
10. India supplies 20% of global generics, 60% of global vaccines
11. India is the world's largest rice exporter and largest edible oil importer
12. CAD: ~1-2% of GDP; managed through services surplus and remittances
13. India receives ~$125 billion in remittances — largest recipient globally
14. Exchange rate: managed float; Rs 85-87 per USD
15. India joined WTO in 1995 as founding member; opted out of RCEP (2019)
16. India-UAE CEPA (2022) and India-Australia ECTA (2022) are recent trade deals
17. FTP 2023: dynamic, no fixed validity; DGFT implements trade policy

Exam Strategy

Key Terms Glossary