Foreign Trade and Performance of Foreign Exchange in India

The growth trajectory of India postulate significant divergence in the structure of sources contributing to its economic growth. The introduction of structural adjustment programmes in the country during the end decade of the 20th century has been inviting significant competition in its product market. The change in income profile and living conditions of the people made the market to be more consumption nature. The hike in crude oil prices and increased demand of luxuries in life by people often force the country to find more funds to import than that done before. On the other side, information technology boom and developments in other service areas helped the economy to earn sizable revenues from its export market segments which mainly concentrated in U.S, Europe and its developed peers from Asia. The mismatch between imports and exports makes the country's foreign exchange market more volatile and most of the currencies of international importance fluctuated with in a big band during the post liberalization period. The relationship between currencies and trade has been the object of a wide policy debate in recent times. This study reviews part of the relevant academic literature that attempts to model and estimate the impact of exchange rate volatility and misalignments on international trade. The review, therefor abstract from other important factors that may have a (more or less direct) bearing on the relationship between exchange rates and trade, such as the factors behind the determination of exchange rates, the impact of exchange rate regimes, or the relationship between exchange rate policies and global imbalances. Significance of the study is very broader and covers both foreign trade and its comparison with currency market. The study will provide a very clear picture of the relationship between foreign trade and currency market on India. This would be helpful for further descriptive studies on the novel ideas that will be further explored.