Foreign trade, as the name suggests is trade between different countries, this can also be referred to as International Trade, or Inter Region trade. It is basically a guideline around import and export trades. The reason to have a foreign trade policy is to maintain a mutual agreement of wants and needs while trading. For a successful economic development of a country, a robust foreign trade policy is crucial. Foreign trade policies are essential of two types,
Free Trade Policy and Protective Trade Policy. As the name suggests in the free trade policy there are no restrictions on areas such as Exchange of Goods or Services, between countries that are trading, there are no bars or limitations on production or consumptions, neither are there any taxes, subsidies or tariffs to adhere to. The arrangement of free trade works quite well for developed countries.
The Protective Trade Policy overall protects the domestic economy from external competition in goods, that might threaten the domestic market for their products and goods. Such a policy is ideal for developing economies like India.
Similar to this there are many other factors due to which the foreign trade policy becomes extremely vital for a country and its economic development.
Appropriate Distribution of labor - through the Foreign trade policy, a country can create a division of expertise and specialization over a global platform. It assists in producing commodities at a lesser cost, so assume a country has huge natural resources, it can outsource the labor, which means export raw material and import finished goods to countries which have skilled labor. Thus they reduce the cost of production.
Stable Pricing - with the help of Foreign trade policy a country can lead to equality of pricing, to ensure a stable demand and supply situation. A foreign trade policy also enables us to import certain products at the time of a natural calamity when demand is high, this ensures the scarcity is managed without taxing the end consumer.
Consumer Advantage – by proving better quality and quantity of goods. It also assists in raising the standard of living especially for underdeveloped countries.
Foreign trade policy of India is very important from the viewpoint of developing economies. For example, in India, we have a strong Iron and Coal reserve, these are established industry opportunities, However, for the growth of this industry, we need to import the technical know-how from other countries who pioneer in it. Assuming that we as a country, did not have a foreign trade policy, then it would become both, a daunting task and an expensive effort.
Another area which would bring our country to a standstill is the inability to fulfil the demands of the petroleum products. An absence of a foreign trade policy would massively hinder the economic development of our country.
India, during the recent years, is referred to as one of the most important players in the global economic setting. There are many factors contributing to this, the present trade policies, economic reforms, also India’s intrinsic strengths are most sought after in the global space.
The country is also promoting infrastructure and technological developments, which are promising for the economic sector in the years to come.
With the forthcoming foreign trade policy, our exports are expected to reach US$ 750 billion by the year 2018-2019.