Advantages and Disadvantages of Foreign Trade in India – Explained!

Main Advantages and Disadvantages of Foreign Trade in India are described below:


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1. Optimal use of natural resources:

Foreign trade helps each country to make optimum use of its natural resources. Each country can concentrate on production of those goods for which its resources are best suited. Wastage of resources is avoided.

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2. Availability of all type of goods:

It enables a country to obtain goods, which it cannot produce or which it is not producing due to higher costs, by importing from other countries at lower costs.

3. Specialisation:


Foreign trade leads to specialization and encourages production of different good in different countries. Goods can be produced at comparatively low cost due to advantages of division of labour.

4. Advantages of large-scale production:

Due to foreign trade, goods are produced not only for home consumption but for exports to other countries also. Nations of the world can dispose of goods which they have in surplus in the foreign markets. This leads to production at large- scale and the advantages of large-scale production can be obtained by all the countries of the world.

5. Stability in prices:


Foreign trade irons out wild, fluctuations in prices. It equalizes the prices of goods throughout the world (ignoring cost of transportation etc.).

6. Exchange of technical know-how and establishment of new industries:

Underdeveloped countries can establish and develop new industries with the machinery equipment and technical know-how imported from developed countries. This helps in the development of these countries and the economy of the world at large.

7. Increase in efficiency:

Due to the foreign competition the producers in a country attempt to produce better quality of goods and at the minimum possible cost. This increases the efficiency and benefits the consumers all over the world.

8. Development of the means of transport and communications:

Foreign trade requires the best means of transport and communication. For the advantages of foreign trade development in the means of transport and communication is also made possible.

9. International co-operation and understanding:

The people of different countries come in contact with each other. Commercial intercourse amongst nations of the world encourages exchange of ideas and culture. It creates co-operation, understanding and cordial relations amongst various nations.

10. Ability to face natural calamities:

Natural calamities such as drought, floods, famine, earthquake etc., affect the production of a country adversely. Deficiency in the supply of goods at the times of such natural calamities can be met by imports from other countries.

11. Other advantages:

Foreign trade helps in many other ways such as benefits to consumers, international peace and better standard of living.


The important disadvantages of foreign trade that you might not know are listed below:

1. Impediment in the Development of Home Industries:

Foreign trade has an adverse effect on the development of home industries. It poses a threat to the survival of infant industries at home.

Due to foreign competition and unrestricted imports the upcoming industries in the country may collapse.

2. Economic Dependence:

The underdeveloped countries have to depend upon the developed ones for their economic development. Such reliance often-leads to economic exploitation. For, instance most of the underdeveloped countries in Africa and Asia have been exploited by European countries.

3. Political Dependence:

Foreign trade often encourages subjugation and slavery. It impairs economic independence which endangers political dependence. For example, the Britishers came to India as traders and ultimately ruled over India for a very long time.

4. Mis-utilisation of Natural resources:

Excessive exports may exhaust the natural resources of a country in a shorter span of time than it would have been otherwise. This will cause economic downfall of the country in the long run.

5. Import of Harmful Goods:

Import of spurious drugs, Luxury articles, etc. adversely affects the economy and well being of the people.

6. Storage of Goods:

Sometimes the essential commodities required in a country and in short supply are also exported to earn foreign exchange. This results in shortage of these goods at home and cause inflation. For example, India has been exporting sugar to earn foreign exchange; hence the exalting prices of sugar in the country.

7. Danger to Internal Peace:

Foreign trade gives an opportunity to foreign agents to settle down in the country which ultimately endangers its internal peace.

8. World Wars:

Foreign trade breeds rivalries amongst nations due to competition in the foreign markets. This may event fully lead to wars and disturbs world peace.

9. Hardships in times of wars:

Foreign trade promotes lopsided development of a country as only those goods which have comparative cost advantage are produced in a country. During wars or when good relations do not prevail between nations, many hardships may follow.


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