The evolution of foreign trade is fundamental for two reasons. First, because exports create jobs and imports replace local work for work done abroad. In addition, because in recent year’s interest payments on the debt and the remittance of profits from foreign companies have increased substantially, that is to say, that if the trade does not provide foreign currency again, the economy will have to continue borrowing and, at some point, make a profit. The recessive adjustment was much more severe than those known in recent years. In the last decade, and despite the fixation of the exchange rate, Exports doubled thanks to improvements in international prices and Indian demand. But imports grew at a faster rate, leading to a difficult-to-reduce trade deficit. Last year, two factors caused a sharp drop in foreign sales: one was the devaluation of the real and the sharp reduction in Indian demand, and the other was the drop in international prices of various products those other countries exports. Imports fell due to the local recession. Consequently, the trade deficit was reduced to less than half of what it was the previous year. This result has reasons that at first glance seem cyclical and originated abroad, such as the aforementioned falls in prices and in Indian demand.

The Advance Authorisation Scheme has helped Indian businessmen to compete in the price war in the international trade and they are exempted from customs duty on raw material import. However, the exposure of Asian trade to these vicissitudes stems from the composition of its exports and from the scarce geographical diversification of its destination. First, although exports have increased in recent years, they are still highly concentrated in primary products or low processing, which traditionally suffer strong fluctuations in international markets. In some periods, these prices have declines that deteriorate the purchasing power of the economies specialized in the production of this type of goods.

The only alternative to avoid these problems is to promote the industrialization of local productions and the exports of non-traditional goods and services. The Export Promotion Capital Goods Scheme (EPCG Scheme) has provided great help in reducing the capital or machinery cost provision. The businessmen are allowed to import the machinery as duty-free that is, there will be no custom duty on import of this machinery but this machinery must be part of the production of the finished product that the businessmen are going to export. This is not achieved by ignoring market determinations, but neither by passively accepting them. To achieve this objective it is necessary to improve the competitiveness of exports. This requires increasing the productivity of export activities or with the capacity to become one. This also includes the suppliers of goods and services that supply exporters, for this it is necessary to have adequate macroeconomic policies but also specific measures, such as technological programs that help companies to add value to exportable products, systems credit for exports -as existing in many industrialized countries- and promotion of business associations to enter foreign markets.