Deficit Financing

Topics: International trade, Export, Petroleum Pages: 6 (1707 words) Published: March 20, 2013
It was during the seventies that the value of imports went up sharply. This was Largely due to the hike in the prices of petroleum and petroleum products Effected by the Organisation of Petroleum Exporting Countries (OPEC) in 1979 and 1980. That is why the value of imports registered an increase 37 percent in 1980-81. During 1970-71 to 1979-80, the value of imports increased by more than 500 percent. During the late eighties, partly due to an increase in the quantum of petroleum products imported and partly due to a rise in the international oil prices, the value of imports once again increased sharply. The ‘Gulf crisis’ in 1990 and the currency devaluation in 1991 further pushed up the country’s import bill. But since the eighties Petroleum products and capital goods determined the growth trends in the value of imports, to a large extent.

In 1991, major reductions in tariffs have been introduced in the nineties. The import weighted average tariff for the whole economy fell from 76.7 percent in 1990-91 to 40 percent in 1993-94, this further fell in 1994-95. Another aspect of import growth during the current year is that due to * a fall in domestic crude oil production,

* (ii) a sharp rise in domestic demand and
* (iii) the recent spurt in world oil prices, imports of petroleum products are likely to push up the import bill in a big way. Export
During the 80s, particularly in the early 80s, the growth of exports slowed down. Exports grew by about 11 percent in the first half of eighties but the growth picked up later and exports grew by almost 27 percent in the second half of eighties. The sluggishness in export growth in the early eighties was mainly due to decline in demand for Indian exports abroad – adoption of protective measures by developed countries – fall in the value of the US dollar, among others.

In 1990-91, export growth once again declined but only marginally to about 18 percent. This deceleration in exports was attributed to: (1) A slowdown in the expansion of world trade. The volume of world trade decelerated from 7.3 percent in 1989 to 4.2 percent in 1990 and further to 0.9 percent in 1991. (2) Loss of export markets in the Middle East due to the Gulf crisis. (3) Political and economic upheavals in Eastern Europe, which earlier provided a sheltered market to Indian exports. (4) Import curbs introduced during 1990-91 affecting export-related imports. (5) Movement in the exchange rate

(6) Internal law and order problems in some states.

Thus, India’s exports have grown considerably both in terms of value and volume, over a period of time. Despite the significant growth, India’s share in world exports was negligible and the relative share remained more or less at the same level. This is attributed to India’s failure in improving its competitiveness in terms of price and quality in the international market.

The composition of foreign trade refers to the kinds of goods imported and exported by a country. It is essential to understand the composition of imports and exports as it reveals the economic status of a country. The changes that may occur in the composition of trade over a period of time reflect the economic transformation of a country.

In 1980-81, their relative share peaked to about 78 percent. This was largely due to a rise in the quantum and prices of petroleum products. In 1985-86, the share of raw materials and intermediates relatively declined to 71 percent. Of the raw materials and intermediates,

* Petroleum, oil and lubricants (P.O.L)
* Fertilisers and chemical products
* Pearls, precious and semi-precious stones
* Iron and steel
* Non-ferrous metals are the major items of imports.

In fact, the industrial liberalisation of the 90’s, has further pushed up these imports in the first half of nineties. However, there is a remarkable fall in the capital goods imports during April-June, 1996 which is attributed to a...
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