Nexus Between International trade and economic growth in India

Many countries nowadays suffer from stifled economic growth because their trading activity is not enough to support growth prospects in the global market. These economies suffer from poor productivity rates and stagnant growth cycle affecting employment and wealth generation. On the other hand, Economies that focus on international trade as an engine of growth prosper in terms of higher productivity and income levels. In this article we will look at the nexus between international trade and economic growth in the context of the Indian market.

  • Export led growth-The share of exports in India’s GDP has increased from 15% in 2012-13 to 20% in 2021-22 which has been a major contributor to the country's economic progress. The Indian economy now heavily depends on the export of commodities and services. India can access worldwide markets, increase its clientele, and make money by trading internationally, all of which help the country's economy thrive.
  • Foreign direct investment (FDI)- It has been a major factor in bringing capital, technology and expertise improving productivity and contributing to domestic growth. The largest source of FDI in India is USA followed by Mauritius, United Kingdom and Singapore accounting for 60% of the total FDI inflows.
  • Specialization and Diversification-India's export and production base can be expanded through international commerce. Productivity and efficiency can rise with specialization in particular industries or sectors where India has a comparative advantage. Economic growth may then result from the allocation of resources to the most lucrative and efficient industries.
  • Competition led Innovation- Indian businesses may become more inventive and productive as a result of exposure to global competition. Businesses frequently spend in R&D to stay competitive in global marketplaces. It has helped India secure 40th position in Global innovation index 2023, showing a remarkable climb from 81st spot in 2015.
  • Access to raw materials- Access to intermediate goods and raw resources, which are essential to the production process, is made possible by international trade. As a result, Indian producers are better equipped to compete at home and abroad by lowering manufacturing costs and raising the quality of their output.
  • Boosts output and employment- Exports generate fresh demand for Indian products and services, resulting in higher production which increases workforce utilisation and employment rate.
  • Raises income and standards of living- Exports bring in foreign exchange profits that can be used to buy necessities, invest in infrastructure, and fund other profitable industries. For all Indians, this results in higher incomes and living standards.

In Conclusion, there is a strong and complex relationship between foreign trade and India's economic expansion. The promotion of economic growth, diversification opportunities, foreign investment, and innovation have all been made possible by international commerce. It does, however, also expose India to outside threats. India must follow cautious trade policies, make investments in infrastructure and education, and maintain its flexibility in response to changes in the global economy in order to maximize the benefits and minimize the dangers.

About the author,

    Sarthak Rastogi

A boy who loves to read and write, is passionate for fitness and sports and has a heart full of compassion and love. He possesses a masters degree in economics with an inclination towards finance and policy making.

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