Definition: Exchange of goods and services between countries.

The inclination for one country to

trade with another is based in large part on the idea of comparative advantage--which says that any
country, no matter how technologically disadvantaged it might be, can always find some sort of good
that will let it enter the game of foreign trade. In this sense, foreign trade is just an extension of the
production, exchange, and consumption that's a fundamental part of life. The only difference with
foreign trade is that producers and consumers reside in separate countries.

BRIEF HISTORY:
On the eve of Independence in 1947, foreign trade of India was typical of a colonial and agricultural
economy. Trade relations were mainly confined to Britain and other Commonwealth countries.
Exports consisted chiefly of raw materials and plantation crops while imports composed of light
consumer goods and other manufactures. Over the last 60 years, India’s foreign trade has undergone a
complete change in terms of composition and direction. The exports cover a wide range of traditional
and non-traditional items while imports consist mainly of capital goods, petroleum products, raw
materials, and chemicals to meet the ever-increasing needs of a developing and diversifying economy.
For about 40 years 1950-90, foreign trade of India suffered from strict bureaucratic and discretionary
controls. Similarly, foreign exchange transactions were tightly controlled by the Government and the
Reserve Bank of India. From 1947 till mid-1990s, India, with some exceptions, always faced deficit in
its balance of payments, i.e. imports always exceeded exports. This was characteristic of a developing
country struggling for reconstruction and modernization of its economy. Imports galloped because of
increasing requirements of capital goods, defense equipment, petroleum products, and raw materials.
Exports remained relatively sluggish owing to lack of exportable surplus, competition in the
international market, inflation at home, and increasing protectionist policies of the developed
countries. Exports crossed the landmark figure of US $ 100 billion to reach US $ 103 billion during
2005-06. During the current year 2006-07 exports are expected to reach the target of US $ 125 billion
if the present rate of growth of exports is maintained during the last quarter of the year. The sustained
growth of merchandise exports at more than 20 per cent during the last few years is more than twice
the growth of Gross Domestic Product (GDP). If this trend continues the export target of US $ 150
billion set in the Foreign Trade Policy for 2009 is likely to be achieved quite comfortably

Why do countries trade:

 States buy goods from each other

 Florida can produce oranges cheaper than other states so they sell to those states
 It make sense to buy goods from where they are produced cheaper
 Why is buying from Florida different that buying from another country?
 Countries cannot produce every good and service they wish to consume
 Countries can benefit if each country specializes in what they can produce best and trade for
other goods
 With specialization and trade, world output increases
Even before independence, the Government of British India maintained semi-autonomous diplomatic
relations. It had colonies, sent and received full diplomatic missions and was a founder member of
both the League of Nations and the United Nations. After India gained independence from the United
Kingdom in 1947, it soon joined the Commonwealth of Nations and strongly supported independence
movements in other colonies, like the Indonesian National Revolution. The partition and various
territorial disputes particularly that over Kashmir, would strain its relations with Pakistan for years to
come. During the Cold War, India adopted a foreign policy of not aligning itself with any major power
bloc. However, India developed close ties with the Soviet Union and received extensive military
support from it. The end of the Cold War significantly affected India's foreign policy, as it did for
much of the world. The country now seeks to strengthen its diplomatic and economic ties with the
United States, the People's Republic of China, the European Union, Japan, Israel, Mexico, and Brazil.
India has also forged close ties with the member states of the Association of Southeast Asian Nations,
the African Union, the Arab League and Iran. At present India have trade agreements with most of the
world the list as by the RBI and Foreign trade board of India is given bellow

I. OECD Countries IV. Developing Countries

A. EU A. Asia
1. Belgium a) SAARC
2. France 1. Afghanistan
3. Germany 2. Bangladesh
4. Italy 3. Bhutan
5. Netherlands 4. Maldives
6. UK 5. Nepal
B. North America 6. Pakistan
1. Canada 7. Sri Lanka
b) Other Asian Developing
2. USA Countries
C. Asia and Oceania 1. People’s Republic of China
1. Australia 2. Hong Kong
2. Japan 3. South Korea
D. Other OECD Countries 4. Malaysia
1. Switzerland 5. Singapore
II. OPEC 6. Thailand
1. Indonesia B. Africa
2. Iran 1. Benin
3. Iraq 2. Egypt Arab Republic
4. Kuwait 3. Kenya
5. Saudi Arabia 4. South Africa
6. UAE 5. Sudan
III. Eastern Europe 6. Tanzania
1. Russia 7. Zambia