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CHAPTER V

TRADE AND EXTERNAL RESOURCES

5.1 Review of Fourth Plan

5.1.1 During the first four years of the Plan, exports and remittances grew at a continued higher rate while imports grew at a slower rate fluctuating from year to year. These trends in export earnings and import payments for goods helped contain trade deficit and ultimately caused the current account deficit to decline. The trade balance and the current account balance, however, worsened in the terminal year of the Plan, largely because of the growth of imports in 1994/95. Overall balance of payments position over the Plan period is shown in Table 5.1.

Table 5.1 Balance of Payments 1990-95 (at 1989/90 prices)

( in million US$)

5.2 Imports

5.2.1 Import of goods at 1989/90 prices grew at an annual rate of 6.14 per cent which was higher than 5.11 per cent envisaged in the Plan. Total import during the Plan period was, however, $130 million (0.66 per cent) less than $19,811 million projected in the Plan due to low imports during the early years. Imports started picking up after declining during the first two years of the Plan and spurred to a peak of $ 5,051 million in the terminal year. Foodgrain imports rose sharply to $622 million in 1994/95, as opposed to the expectation of a fall to $100 million. Non-food imports and imports of intermediate goods grew at a lower rate of 5.4 per cent and 5.5 per cent respectively compared to 6.6 per cent and 9.8 per cent projected in the Plan. Capital goods import actually declined by 2.2 per cent against the expectation of a 1.7 per cent growth during the Plan. Import of textile goods grew at about 30 per cent in response to higher foreign demand for ready-made garments(RMG) against an average growth of 20.7 per cent as envisaged in the Plan. The commodity structure of imports in the base year (1989/90) of the Plan and that in its terminal year (1994/95) are shown in Table 5.2.

Table 5.2 Merchandise Imports During Fourth Plan Period ( at 1989/90 c. i. f. prices )

( in million US$)

5.3 Exports

5.3.1 Total exports during the Plan period fell short of the projection by $400 million (3.71 per cent) and amounted to $ 10,392 million. In contrast, the average annual rate of growth of exports was a bit higher at 12.2 per cent than 11.6 per cent envisaged in the Plan as export picked up slowly during the early years. Non-traditional exports grew at a higher rate of 17.2 per cent against the Plan projection of an average annual growth of 16.0 per cent thereby offsetting the shortfall in traditional exports. Ready-made garments fell short of the target which was more than compensated by the knitwear export. Export earning by commodities may be seen in Table 5.3. It may be pointed out that the Fourth Plan experienced some healthy developments in the shares of ready-made garments and frozen food. These two items together grew at an annual rate of 16.79 per cent. However, their share declined from 72.67 per cent of non-traditional export earnings in 1989/90 to 71.28 per cent in 1994/95. Non-traditional exports thus underwent further diversification which reduced the overall risk of price fluctuations. Knitwear, leather goods and the specialised textiles added to this diversification.

Table 5.3 Merchandise Exports During Fourth Plan Period (at 1989/90 f.o.b. prices)

( in million US$)

4. Terms of Trade

5.4.1 The terms of trade which deteriorated by 2.6 per cent in 1989/90 improved by 2.3 per cent in 1990/91, 1.4 per cent in 1991/92, 3.5 per cent in 1992/93 and 2.7 per cent in 1993/94, largely as a consequence of a faster growth in the prices of exports in general than imports (Table 5.4). However, 8.9 per cent increase in the import price index against 6.6 per cent rise in the export price index resulted in a deterioration of 2.2 per cent in the country’s terms of trade in 1994/95.