Spend, Save and Invest Smartly

History of Foreign Exchange in India

Currency trading can draw its history back to the middle ages when global merchant banker devised the system of using bills of exchange. It is however changes which have occurred throughout the twentieth century which have actually shaped trading in the global currency market we see today. In the 1930s the British pound was measured to be the world's principle trading currency and was the currency detained by many countries as their main reserve currency.

In spite of its size India plays a comparatively small role in the world financial system. Until the 1980s the government did not make exports a priority. In the 1950s and 1960s Indian officials thought that trade was biased against developing countries and that forecast for exports were severely limited. So, the governments meant at self-sufficiency in most products during import replacement with exports cover the cost of residual import necessities. Foreign trade was subjected to strict government controls which consisted of an all-inclusive system of foreign exchange and direct controls over imports and exports. As a result India's share of world trade shrank from 2.4 percent in FY 1951 to 0.4 percent in FY 1980. Mainly because of oil price increases in the 1970s which contributed to balance of payments difficulties governments in the 1970s and 1980s located more emphasis on the promotion of exports. They hoped exports would provide foreign exchange needed for the introduce of oil and high-technology capital goods. However, in the early 1990s India's share of world trade stood at only 0.5 percent. In FY 1992, imports accounted for 9.3 percent of GDP and exports for 7.7 percent of GDP.

No one product dominates India's exports. In FY 1993 handicrafts, gems, and jewelry formed the most main sector and accounted for an estimated US$4.9 billion (22.2 percent) of exports. Since the early 1990s India has become the world's largest processor of diamonds (imported in the rough from South Africa and then fabricated into jewelry for export). Along with other semiprecious commodities, such as gold, India's gems and jewelry accounted for 11 percent of its foreign-exchange receipts in early 1993. Textiles and ready-made garments combined were also a significant category accounting for an predictable US$4.1 billion (18.5 percent) of exports. Other significant exports include industrial machinery, leather products, chemicals and related products.

The main imports are petroleum products valued in FY 1993 at nearly US$5.8 billion or 24.7 percent of principal imports and capital goods amounting to US$4.2 billion or 21.8 percent of principal imports. Other important import categories are chemicals, dyes, plastics, pharmaceuticals, uncut precious stones, iron and steel, fertilizers, nonferrous metals, and pulp paper and paper products India's most significant trading partners are the United States, Japan, the European Union, and nations belonging to the Organization of the Petroleum Exporting Countries (OPEC). From the 1950s until 1991, India also had close trade links with the Soviet Union but the breakup of that nation into fifteen independent states led to a refuse of trade with the region. In FY 1993 some 30 percent of all imports came from the European Union, 22.4 percent from OPEC nations, 11.7 percent from the United States, and 6.6 percent from Japan. In that same year, 26 percent of all exports were to the European Union, 18 percent to the United States, 7.8 percent to Japan, and 10.7 to the OPEC nations.

Trade and investment with the United States seemed likely to knowledge an upswing following a January 1995 trade mission from the United States led by Secretary of Commerce Ronald H. Brown and including top executives from twenty-six United States companies. During the weeklong visit some US$7 billion in business deals were agreed on frequently in the areas of infrastructure development, transportation, power and communication systems, food processing, health care services, insurance and financing projects, and automotive catalytic converters. In turn greater access for Indian goods in United States markets was sought by Indian officials.

In February 1995 in a bid to improve commercial prospects in Southeast Asia, India signed a four-part agreement with the Association of Southeast Asian Nations (ASEAN). The deal covers trade, investment, science and technology, and tourism, and there are prospects for further agreements on joint ventures, banks and civil aviation.

India's balance of payments position is closely connected to the balance of trade. Foreign aid and remittances from Indians employed overseas, however, make the balance of payments more favorable than the balance of trade.

Financial Planning
Tax Planning
Investment Planning