हिंदी
CISCEISC (Arts) Class 12
प्रश्न पत्र४३८
पाठ्यपुस्तक उत्तर९५८४
महत्वपूर्ण प्रश्न एवं उत्तर६३६२
अवधारणा स्पष्टीकरण और वीडियो८४६
समय सारणी१६
पाठ्यक्रम

Foreign Trade Policy

Advertisements

Topics

Estimated time: 16 minutes
  • Introduction
  • Key Terms
  • Deficient Demand and Export Surplus
  • Excess Demand and Import Surplus
  • Ways India Covers Excess Imports
  • Key Points: Foreign Trade Policy
CISCE: Class 12

Introduction

Foreign Trade Policy is a tool used by the government to control imports and exports in order to fix problems of excess demand or deficient demand in the economy.
Simple words: If the economy has too much demand → bring in more goods from abroad. If the economy has too little demand → sell more goods to other countries.

CISCE: Class 12

Key Terms

Term Meaning
Balance of Trade (BOT) The difference between a country's exports and imports​
Favourable BOT Exports > Imports → called Export Surplus​
Unfavourable BOT Imports > Exports → called Import Surplus​
Excess Demand Total demand in the economy is MORE than total supply → causes inflation​
Deficient Demand Total demand in the economy is LESS than total supply → causes unemployment​
CISCE: Class 12

Deficient Demand and Export Surplus

When there is a deficient demand, people are not spending enough. Factories produce more than people buy. Workers lose jobs. Prices fall. The economy slows down.

What is the Solution? → Increase Exports
When India sells more goods to other countries (exports), foreign buyers pay us money. This is like getting new demand from outside — it boosts production and employment inside India.​
Easy Analogy: Think of exports like a new customer walking into a shop. Even if local people aren't buying, a foreign customer buying our goods keeps the factory running!
Why does Export = Investment?
An increase in exports has the same effect on aggregate demand as an increase in investment. Both inject new money into the economy.

3 Ways to Increase Exports

# Factor Explanation
1 Rise in foreign income When other countries grow richer, they buy more of our goods​
2 Lower export prices If our goods are cheaper than others in the world market, more countries buy from us​
3 Surplus production When India produces more than it needs domestically, the extra can be exported​

Result → Export Surplus = Favourable Balance of Trade 

CISCE: Class 12

Excess Demand and Import Surplus

When there is excess demand, everyone is spending too much. There are not enough goods in the market. Prices shoot up. This is called inflation.

What is the Solution? → Increase Imports
When India brings in more goods from other countries (imports), the supply of goods in the market goes up. More goods available → prices come down → inflation is controlled.
Easy Analogy: Imagine a shop running out of sugar and the price skyrockets. Now imagine the shopkeeper gets extra sugar from another city — prices immediately come down. That is exactly what imports do for the whole country!
Result → Import Surplus = Unfavourable Balance of Trade 

CISCE: Class 12

Ways India Covers Excess Imports

When India imports more, it has to pay foreign countries in their currency (foreign exchange). The government arranges this money in 3 ways:​

# Method Simple Explanation
1 Decrease foreign capital assets Use India's saved foreign exchange reserves (like using money from a savings account)​
2 Borrow from international institutions Take loans from the IMF or the World Bank (IBRD)
3 Foreign aid / grants Receive financial help from friendly foreign governments (no repayment needed)
CISCE: Class 12

Key Points: Foreign Trade Policy

  • The Foreign Trade Policy corrects both excess demand and deficient demand​
  • Balance of Trade = Exports − Imports​
  • Export Surplus = Exports > Imports = Favourable BOT​
  • Import Surplus = Imports > Exports = Unfavourable BOT​
  • Exports fix deficient demand — they work just like investment in boosting aggregate demand​
  • Three factors that raise exports: foreign income ↑, export prices ↓, surplus production ↑​
  • Imports fix excess demand — more goods in market → prices fall → inflation controlled​
  • Import surplus is financed by: foreign reserves, IMF/World Bank loans, foreign grants

Test Yourself

Advertisements
Share
Notifications

Englishहिंदीमराठी
Login
Create free account


      Forgot password?
Course
Use app×