India's balance of trade with ASEAN

Before Independence, more exports and less imports which was the feature of India's foreign trade helped the growth of a favourable tradebalance. The balance of trade was so favourable with Britain and other common wealth countries - the principal customers of Indian goods. The value of exports and imports has both been on the increase during 1938-39 to 1947-48 although exports were consistently higher than imports1.
Table 1.1
Foreign Trade of India during1938-39 to 1947-48
(Value in Rs. Crore)

Year Exports Imports Trade Balance
1938-39 169 152 +17
1945-46 266 245 +21
1946-47 319 288 +31
1947-48 403 389 +14
Source : Reserve Bank of India Bulletin.
At that time, primary items were India's main exportable items, whereas imports were restricted primarily to manufactured articles. So despite a favourable balance of trade the pace of industrial development and economic progress had been considerably low.
After independence even though India has continued to be a member of the British common wealth she has succeeded in getting new trading partners al most all countries of the world. Besides V.K., other countries of importance are U.S.A., Germany, Japan, Russia, member of OPEC, members of SAARC, members of ASEAN, members of OECO. India's foreign trade had taken sudden changes since than not only in its composition but also in its direction and quantum. Today we have about 7500 and 6000 items on our export import list whereas there were merely twenty five percent at the time of independence.
The value of India's imports has been continuously rising since 1951, for various reasons, such as2 :
Rapid industrialisation necessitating increasing imports of machinery and equipment, industrial raw materials, technical know how etc;
Control of inflationary pressure within the country though increased imports and supply of price sensitive goods such as edible oils, cement etc.
Policy of liberal imports on the pretext of export promotion, resulting in increase of not only essential imports but even non-essential imports such as colors T.V. etc and
Periodic hike in crude oil prices by OPEC since 1973 from a little over $ 2 o nearly $ 27 per barrel, constituting the single biggest factor for boosting imports since 1973-74 and especially till 1979-80 and again in 2000-2001 and 2001-2002.
Policy of import liberalization pursued during 1985-86 and thereafter.
Owing to an increase in imports to meet her developmental needs, India has to face the problem of adverse balance of trade with many countries of the world and ASEAN. Table 5.1 points to the overall trend in India's adverse balance of trade from 1993-94 to 2002-03.
Table 1.2
India's Overall Trade Balance (1993-2002)
alue in Million US $)

Year Exports Imports Trade Balance
1993-94 22238 23306 -1068
1994-95 26330 28654 -2324
1995-96 31797 36678 -4881
1996-97 33470 39132 -5662
1997-98 35006 41484 -6478
1998-99 33219 42389 -9170
1999-00 36822 49671 -12848
2000-01 44560 50536 -5976
2001-02 43796 50746 -6950
2002-03 52234 59386 -7152
Source : Compiled and computed from the data provided in Reserve Bank of India Bulletin, April 2003.
A sharp increase in India's adverse balance of trade can mainly be attributed to on immense increase in imports needed to meet her developmental requirements. Foreign trade deficit which stood at 1068 million US $ in 1993-94 increased to million 2324 US$ in 1994-95 and to 4881 million in 1995-96. Thereafter, as a result of the sharp deterioration in world economic environment in trade, the south east Asia crisis, continued recession in Japan, severe economic crisis in Russia in 1998 and fall in world output by 2 percent during 1997-98 leading to a decline in world trade, all resulted in a slowdown in India's foreign trade. During 1998-99, exports declined to $ 33219 million as against $ 35006 million in 1997-98. However, exports picked up during 1999-2000 to $ 36822 million. Correspondingly, there has been a much sharper increase in imports from $ 36678 million during 1998-99 to $ 49671 million during 1999-2000. The benefits of export growth had been more than neutralized by sharper increase in import and as a consequence, trade deficit reached the unfrequented level $ 12848million in 1999-2000. Further, various measures have been taken by the government in the direction of export promotion, there had been a distinct improvement in the performance of India's foreign trade during the years 2000-01, 2001-02 and 2002-03. Acceleration in the growth rate of exports, and deceleration in that of imports was noted in the years 2000-01, 2001-02 and 2002-03 arresting thereby the trend of rapid growth in trade deficit experienced during the period 2000-01, 2001-02 and 2002-03. The annual growth in the value of exports moved up from 2.6 percent in 1999-00 to 21 percent in 2000-01. In very next year export annual growth fell down heavily (-1.7 percent). But it again rised by 19.18 percent in 2002-03,whereas the annual growth in the imports bill dropped from a level of 11.2 percent in 1999-00 to 1.7 percent in 2000-01 and 0.4 percent in 2001-02. But in 2001-03 it again increased by 17.03 percent. As a result, the balance of trade deficit declined somewhat i.e. from 12858 million US $ in 1999-00 to 5976 million US $ in 2000-01, 6950 million US $ in 201-02and 7152 million US $ in 2002-03.
Indo-ASEAN Balance of Trade :
Table 1.3
India's Overall Balance of Trade with ASEAN (Value in Million US $)
(1993-2002)

Years
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Export to India 1483.95 1989.53 2821.05 3722.60 4473.19 5217.86 5728.07 6555.60 6210.97 8418.12
Import from India 1429.64 1547.00 1838.41 2843.82 4395.45 1750.41 2744.88 3213.84 3672.05 3696.48
Trade Balance +54.31 +442.53 +982.64 +878.98 +7.74 +3467.45 +3583.19 +3341.76 +2538.92 +4721.74
Source : India's foreign trade DGCI & S, Kolkotta.
The value of exports from ASEAN to India and import from India to ASEAN had both been on the increasing during 1993 to 2002.(Refer Table 5.3).It is clearly indicated by the table that trade balance since 1993 to 2002 remained in favour of ASEAN. ASEAN export was excess over our import during this period. ASEAN export to India was 1483.95 million US $ in 1993 and after a steady increased it reached upto 8418.22 million US $ in 2002 whereas during the same ASEAN import from India was 1429.64 million in 1993 and 3696.48 million in 2002. In 1993, trade balance was 54.31 million US $ increased to 442.53 million US $ in 1994, 982.64 million in US $ 1995 and to 878.68 million US $ in 1995. During a sharp declined in 1997 it stood at 77.74 million US $ due to south east Asian crisis but further since 1998, acceleration in trade balance in favour of ASEAN was noted. This is mainly due to an outward look of whole ASEAN countries.
Favourable balance of trade turned unfavourable. However, as a result of a tremendous increase in exports, India recorded a sizable trade surplus of US $ 203.49 million in 1999 due to faster growth in exports and a slight fall in imports. But again in very next year it declined US $ 21.51 million and again it gave a turn to a sizeable trade surplus of US $ 191.77 and 352.85 in 2001 and 2002 consequently
On the basis of above study of India's balance of trade with ASEAN countries reveals some remarkable tendencies. By and large our balance of trade with Brunei, Cambodia, Philippines and Thailand has been favourable but over balance with other member nations Indonesia, Malaysia, Myanmar and Singapore, has been recording a consistently downward trend with the result that the overall balance of trade has been heavily unfavourable.
It has been observed that government in some of the ASEAN countries have emerged as potential buyers on account of their increasing involvement in the economic development plans, Therefore, India can successfully and advantageously participate in the economic development of these countries and can turn trade deficit into surplus by fostering exports with them.
India has been desperately trying to reduce the present (rather substantial) adverse balance of trade with ASEAN countries. In almost all the plan documents, considerable emphasis has been laid upon achieving export promotion, import substitution, diversification and industrialisation. However, trade deficits alone do not amount to balance of payments difficulties, especially for such open economics as those of most ASEAN economics. For example, the huge trade deficits incurred by Singapore every year do not create a balance of payment difficulty due to her earnings and unrecorded trade outflow. Brunei, Singapore and Malaysia are not saddled with a balance of payment difficulty. The economics of these countries are sound and experiencing high growth rates accompanied by tendencies towards balance of payments surplus position. The case of Indonesia, Myanmar is unique. The rapid expansion of primary exports for both the countries and the oil boom have resulted in more than doubling Indones's foreign exchange earnings yet thanks to the colossal mis-management in the past, a major portion of foreign exchange earnings from oil will have to be directed towards paying off old foreign debts. In case of Cambodia Philippines and Thailand, however, the pace of economic growth has rapidly increased in recent years but their balance is unfavourable due to structural imbalances arising from the buoyancy of imports vis-à-vis the sluggishness of export.
Continuing balance of trade, deficit could set a severe constraint to growth, Hence, every country wants to enjoy a favourable balance. How to overcome this problem?
Diverse modes of settlement of balance of trade are in vogue at present, most important of which being as follows3 :
Deferred Payment and Credit Facilities :
Rapid developmental need is a core requirement of development countries, interested as they are to attain self sufficiency in the major sectors of economy such as industrial, service etc. For achieving that target they have to import capital items and engineering goods. Now, massive imports of capital goods create the problems of exchange affecting trade activities/transaction. To overcome this problem developing countries can enter into serve agreements under which payment may be deferred for some time. Secondly, credit faulty is a very popular and workable via media in the settlement of balance of payment. ASEAN region, however widely adopted these techniques but only on a short term basis.
External financial Assistance :
It is after observed that the inflow of financial assistance is not sufficient to meet the overall deficit on balance of payment accounts. The international climate for official Development Assistance (ODA) to developing countries (DOC) continues to remain unfavourable. In most cases political considerations weigh heavily in granting financial assistance to needy nations.
Trade and Payment Arrangements :
These agreements have helped in strengthening the ties and smoothening trade relations such agreements may be either bilateral or multilateral. The most common features of these agreements are that payments for transactions are settled in freely convertible currencies through normal banking channels in accordance with the foreign exchange regulation in force in respective countries. The agreements also provide, inter-alia, that both countries would extend the most favoured nation (MFN) treatment to each other, covering customs duties and other charges on imports, exports and transfer payments etc. It solves the problem of foreign exchange, enhances mutual co-operation and provides facilities to countries to settle their balance.
Special Drawing Right (SDR) :
The deficit on current account and that accruing from capital transactions can be financed through external assistance (loans and grants) from IMF and allocation of SDR. With the help of SDR countries can tackle the problem of uncertainty to a very great extent, regarding foreign exchange and set the balance of payment. Apparently, developing countries can not afford sufficient foreign exchange to meet out their developmental needs. To stand the stiff competition in the international trade area they are impelled to import capital goods, and technical know-how from abroad. Sow progress in exports and massive inflow of imports create the problem of imbalances in the trade structure. There arises the problem of the settlement of deficit in balance of payment. It can not be easily met out through domestic resources naturally such nations are forced to approach international agencies (like IMF, ADB, World Bank etc.) for obtaining the needed foreign exchange.
EXIM Bank :
India has established the export Import Bank (EXIM-Bank) for facilitating export and import activities. Its main objective is catering to export promotion, to act as a catalyst and co-coordinator in organizing contortions and to finance participation in heavy development projects, joint ventures and turnkey projects. Apart from importing continuity and stability to foreign trade, the EXIM-Bank seeks to facilitate increased production, through easier and stability to foreign trade, the EXIM bank seeks to facilitate increased production, through easier and quicker access to inputs, strengthen the base for export production, encourage further savings in imports through efficient import substitution, facilitate technological upgradation and modernisation in production and streamline administrative procedures. Thus, it enhances exports in different areas and provides credit in larger volume and on easier terms. Thus the EXIM bank becomes an indirect media for the settlement of balance of payment.
Counter Trade :
Counter trade is now a familiar in international market. The underlying idea is the exchange of goods or services between countries without paralled transactions in money. Counter trade in the form of barter, between developing economics in the region and centrally planned economics of eastern Europe, has been in operation for quite some years. In the ASEAN region, Indonesia adopted an explicit counter purchase policy effective from January 1962. Malaysia also appointed a committee in June 1982 to explore potential markets and identify eligible products for increasing counter trade. Other ASEAN countries also trying their best to establish special institutions to deal with counter trade.
In practice five to six variants of counter trade have been identified chief among them are:
1. Barter trade 2 counter purchase 3 Buy back counter trade is very helpful in setting balance of payment. Increased reliance on counter trade is due to several factors such as -
The need for saying currency to serve growing debt liabilities.
Obviating export quota or minimum export price restrictions.
Securing access to markets under circumstances in which it would be difficult to sell certain products without counter trade.
The main advantages attributed to counter trade are that it reduces the need for convertible foreign exchange, encourages export of non-traditional products and helps break into new markets. Now-a-days counter trade technique is very useful in setting balance of payment. It is as well helpful in over coming the problems of access to markets and constraints of foreign exchanges in financing trade.
It is thus clear that there are several modes of settlement of balance of trade followed by ASEAN countries. Out of these rupee trade, counter trade, EXIM Bank, SDR, trade and payment arrangement, external financial assistance and deferred payment and methods adopted by them.
References:
1&2-Dutt and sundharam; indian economy,the foreign trade of india,page 719.
3 -Subrammanaya s; Foreign trade and india's export policy 2002-03.