Foreign Trade Of India: Trade, Policies And Impact

This paper aims to measure foreign trade of India concentrating merely on the period after its independency. The focal point is on the character and construction of the Indian economic system and the policy determinations of the authorities that led to the singular alteration in foreign trade in India. The paper delves into the development and growing theories that influenced India ‘s policy determinations. It besides looks into how India ‘s growing form confirms to a figure of developmental theories and how it ‘s different from the others. The benefits and costs of India ‘s accelerated growing are discussed.

II. Introduction

When a population of over 1 billion people backs the 4th largest economic system with the 2nd fastest growing rate in the universe, you get a state that you merely can non disregard. India, now being touted as the new Asiatic tiger, can be said to be one of the most promising developing states in the universe. India ‘s economic system has taken great paces since independency. However, India is still a low income state with a Personal computer GDP of a mere $ 3700 ( CIA Factbook ) . Its journey of experimenting with socialist policies to the recent opening up of the economic system and its singular effects makes it an interesting instance survey. However, India has been peculiarly cautious of globalisation. This has led to the befitting rubric “ loath tiger[ 1 ]“ .

In the 1990 ‘s, India was forced by a BOP crisis to implement a batch of denationalization, liberalisation and globalisation reforms. Therefore, India deviated from its earlier socialist type assorted economic system. As India employed the “ pro-business ” economic reforms, economic growing accelerated. The run of “ India polishing ” epitomizes the convenience with which many coppice aside the cost of this accelerated growing. In world, India is non reflecting for all Indians. The distributional impacts of this uneven growing are widening the urban-rural divide. Despite the attempts of the authorities the inequality, particularly regional inequality, is lifting. Bettering substructure can be one of the methods by which India makes its growing more inclusive of the hapless.

III. Change in Foreign Trade

In 1947, after about 200 old ages under the British regulation, India was still staggering from the wake of the independency battle and the divider. The authorities tried to protect India ‘s fledging economic system by following a protectionist base. It opted for a centrally planned economic system with five twelvemonth programs responsible for maneuvering the economic system. Though India has a assorted economic system which involves both the private and the populace sector, the populace sector played an particularly of import function until before the 1990s.

Excluding 1963[ 2 ], export of goods and services as a per centum of GDP ( see Table 6 ) was a changeless 4 % for more than a decennary get downing 1961 to 1973.This was because India ‘s exports comprised chiefly of primary trade goods like tea, cotton and jute, the demand for which is inelastic. Imports, nevertheless, consisted of machinery and natural stuffs required for industrialisation. During the same period, import of goods and services ( see Table 6 ) bit by bit decreased from 7 % to 4 % of the GDP. From 1973 to 1979, exports began to pick up and exports and imports formed approximately the same per centum of the GDP. In the 1980s, the exports once more fell below the imports and this tendency continued till 1990.

Though the current history balance ( see Table 4 ) was ever negative boulder clay 2000, it hit a depression of -2.6 in 1989. The state of affairs worsened to such an extent that the India had to borrow merely to do its involvement payments, therefore come ining into a barbarous debt rhythm. Furthermore, the foreign exchange modesty ( see Graph 1 ) during this period was really low, therefore, making jobs for imports. India was forced to bit by bit open up its economic system and lower the trade barriers.

Since 1991, the value of India ‘s international trade has become more broad-based and entire external trade ( see graph 3 ) has increased. Exports have increased from US $ 18 billion to US $ 125 billion. In the same period imports excessively have increased from US $ 24 billion to US $ 181 billion. Since liberalisation, the value of India ‘s international trade has become more broad-based. These alterations have been brought about by assorted factors.

IV. Factors that brought about a alteration in foreign trade

The growing in entire external trade can be attributed to both internal growing and the gap up of the economic system. From the clip of independency to 1991, India aimed to accomplish ego trust. “ Average duties exceeded 200 per centum, quantitative limitations on imports were extended, and there were rigorous limitations on foreign investing ” ( World Bank ) . Its policy included cardinal planning, industrialisation, making a big public sector and ordinance of concerns, fiscal markets and the labour market.

The authorities laid out the marks and ends in the five twelvemonth programs and one-year programs. The first five twelvemonth program was launched in 1951 and presently the 11th five twelvemonth program is underway. The programs helped in doing India self-sufficient in nutrient, easing industrialisation etc. Since, the authorities did non see the private sector to be ready to put in certain concerns, it played the demiurge map. In add-on to commanding sectors of strategic importance, the province invested to a great extent into industries that required immense sums of initial investing and have a long gestation period. However, corruptness and inordinate ruddy tape made these Public Sector Units inefficient.

Lewis ‘s excess labour theoretical account is besides applicable to India. At the clip of independency, agribusiness and allied sectors provided good over 70 % of the entire employment and contributed for more than 50 % of the GDP. In world, much of the labour force in the agricultural sector was underemployed. Furthermore, India was Manichaean. The economic system and had a “ traditional, low-productivity rural and preponderantly agricultural sector, where the great majority of the population worked and produced what it consumed ” ( Cypher and Dietz ) . Subsistence agriculture was really common in rural India. There besides existed a “ modern capitalist sector, where production was more technologically driven ” ( Cypher and Dietz ) . Then, a gradual procedure of labour transportation started. Labor moved from the agricultural sector of rural countries to the fabrication sector in urban and industrial countries. As Lewis predicted, productiveness in the agricultural sector increased. Simultaneously, employment in the industry rose along with entire national end product. Even in 2003, the agricultural sector employed about 60 % of the labour force ( CIA Factbook ) . However, as India undergoes this structural alteration from agricultural to fabricating sector, the service industry is besides turning quickly. This is because of the Information Technology ( IT ) revolution.

The human capital theory emphasizes on constructing human capital by puting in wellness and instruction of the populace. India set up 7 IITs ( Indian Institutes of Technology ) which are technology and engineering oriented institutes of higher instruction. In 2000, India besides passed the Informational Technology Act. These steps spurred the IT roar. Ayres excessively advocated spread outing educational chances for the society to advance economic and societal advancement.

Following the macroeconomic crisis in the late eightiess, India launched a series of policy steps as a portion of the structural accommodation plan. The Anderson Memorandum titled “ Trade Reforms in India ” ( Nov. 30, 1990 ) was submitted to Government of India by the World Bank. The papers included steps like opening up more countries for private, domestic and foreign investing, shuting ill public sector units, reforming the fiscal sector by leting in private Bankss, cutting societal sector disbursement to cut down financial shortage, amending bing Torahs and ordinances to back up reforms, and liberalising the banking system. It besides recommended revenue enhancement reforms taking to greater portion of indirect revenue enhancements, a new Industrial Policy leting more foreign investings, portion disinvestment of authorities equity in profitable public sector endeavors, a market-friendly attack and less authorities intercession and most significantly a broad import and export policy.

India ‘s industrial policy has undergone extremist alterations since 1991. Removal of entry barriers for private investing through de-reservation of industries meant for Public Sector, de-licensing of industries for private investings, abrogation of Foreign Exchange Regulation Act ( FERA ) and leting Foreign Direct Investment ( FDI ) into assorted sectors of Indian economic system, remotion of plus size limitations by amendment of Monopolies and Restrictive Trade Practices ( MRTP ) Act, dilution of protection to Small Scale Industry ( SSI ) are the hall Markss of India ‘s industrial policy liberalisation since 1991.

“ Although IndiaA has steadily opened up its economic system, its duties continue to be high when compared with other states, and its investing norms are still restrictive. This leads some to see India as a ‘rapid globalizer ‘ while others still see it as a ‘highly protectionist ‘ economic system ” ( World Bank ) . However, harmonizing to World Development Indicators, India ‘s planetary integrating is greater than that of USA and Japan ( see table 8 ) .

Foreign assistance was another of import factor impacting India ‘s growing. Aid and foreign aid were instrumental in conveying about the really successful Green Revolution. “ India began its ain Green Revolution plan of works genteelness, irrigation development, and funding of agrochemicals ” ( CGIAR ) . The productiveness of agribusiness improved drastically as husbandmans now had entree to better seeds and advanced methods. The white revolution ( milk ) tried to retroflex the success, but it was comparatively less successful.

Last to hike exports, India has set up Particular Economic Zones ( SEZs ) . ” With a position to get the better of the defects experienced on history of the multiplicity of controls and clearances ; absence of first substructure, andA an unstable financial government and with a position to pull larger foreign investings in India, the Particular Economic Zones ( SEZs ) Policy A was announced in April 2000 ” ( Ministry of Commerce and Industry ) . A SEZ is deemed to be foreign district for the intents of trade operations, responsibilities and duties.

Therefore, the following were the factors which led to the alterations in the Indian economic system and accordingly its foreign trade statistics. First, the displacement from the socialist divine protectionist base to open market type assorted economic system. Second, India successfully invested into human capital. Third, India removed many duty and non-tariff barriers and lowered the import revenue enhancements. Fourthly, assistance and foreign aid have helped domestic sectors and industries capable of exporting goods. Last, SEZs have been established to assist both domestic and foreign trade.

V. Benefits and Costss

The benefits of India ‘s growing are obvious. Consumers have a batch more pick, the criterion of life has improved and India is basking a period of unprecedented growing. India ‘s growing rate has gone from being scoffingly called the “ Hindu rate of growing[ 3 ]“ to the being wowed for being the “ 2nd fastest growing rate in the universe ” . For the past four financial old ages, existent GDP has risen at over 8.5 per centum per twelvemonth, doing India one of the universe ‘s fastest turning economic systems. Yet, India still has the largest concentration of hapless people in the universe.

The disadvantages of Lewis ‘s excess labour theoretical account played out in India excessively. A important portion of the lifting income went to the capitalists, who reinvested it to do farther net incomes. At first the authorities was unconcerned about the unequal distribution of income. It believed that the “ dribble down ” theory would assist in bit by bit redistributing income. Year after twelvemonth of unimproved poorness statistics eventually convinced the authorities to abandon the delay for the “ dribble down ” to happen. The authorities started Poverty Alleviation Programs ( PAPs ) and besides employment warrant plans. Many of the employment plans focused on making societal substructure. “ Decisive reforms are required to guarantee go oning economic growing, yet the ability of the authorities to go through and prolong reform impulse depends on popular support. If big parts of the populations are left behind, even if merely in comparative footings, the viability of future reforms may be threatened ” ( Topalova ) . Therefore, holding an inclusive growing was of extreme importance. Thus the authorities aimed at “ Achieving a growing procedure in which people in different walks in lifeaˆ¦.. feel that they excessively benefit significantly from the procedure ” ( Ahluwalia ) .

“ All steps point to a important addition in overall inequality in the 1990s, peculiarly in urban countries, and within all but one province ( in Bihar inequality remained level ) . While inequality was stable ( in urban India ) and worsening ( in rural India ) in the 1980s, this tendency was reversed wickedness the 1990s ” ( Topalova ) . The authorities has attempted to cut down this regional inequality by supplying inducements to put up industries in the backward parts. However, even industrial townships like Bhilai, with industries with strong industrial linkages like steel, have failed to overhaul adjacent countries.

One of the major causes behind this uneven distribution of income is substructure. India ‘s substructure is terribly hapless. Investing a greater portion of the GDP on making substructure would decrease the job of regional inequality and besides significantly increase the GDP.

India ‘s focal point on higher instruction backfired when it caused a job of encephalon drain. Persons whose higher instruction was subsidized by the authorities were go forthing India in droves in hunt of better occupation chances abroad. In such instances, the authorities needs to set in equal attempt in making occupations commensurate to the accomplishments of the labour force.

VI. Decision

To convey it all together, the Indian has tremendous potency. Harmonizing to Goldman Sachs, “ India is to go the universe ‘s 2nd largest economic system by 2050 ” . Though its possible for growing is unquestionable, the distribution of income depends on the future policies of the authorities. I look frontward to the twenty-four hours when the Indian tiger booms with the strength of a billion people behind it.

IV. Mentions

Ahluwalia, M. , 2002. “ State-Level Performance under Economic Reforms, ” in Economic Policy Reforms and the Indian Economy, erectile dysfunction. Anne Krueger. New Delhi: Oxford University Press.

CIA Factbook

Consultative Group on International Agricultural research ( CGIAR ) . JanuaryA 23, A 2007. “ Rice research hub for Greater Mekong Sub-region opens in Laos: cooperation is cardinal in Southeast Asia ‘s most of import rice bowl ” .

Cypher, James M. and James L. Dietz, 2006. “ Developmentalist theories of economic development ” , The Process of Economic Development ( 2nd Ed ) , New York: Routledge. Pg 142.

Directorate General of Commercial Intelligence and Statistics ( DGCI & A ; S ) , Ministry of Commerce, Government of India.

International Monetary Fund Database

Ministry of Commerce and Industry, Department of Commerce. Last updated: May 2008. “ Particular Economic Zones in India ” . & lt ; hypertext transfer protocol: //go.worldbank.org/RJEB2JGTC0 & gt ;

Planing Commission, Government of India

Reserve Bank of India, Handbook of Statistics on Indian Economy

The World Bank and India, Chapter 10 “ The Bank and Structural Adjustment ” [ www.ieo.org/world-c10-p1.html ]

Topalova, Petia. March 2008 “ India: Is the Rising Tide Raising All Boats? “ , IMF working paper.

World Bank Organization. “ India: Foreign Trade Policy ” .

World Development Online, The World Bank Group