Foreign trade and economic growth of India during the globalization era

Foreign trade policy is a set of guidelines or instructions by the Government in matters related to the import and export of goods such as International trade. In India, the Ministry of Commerce and Industry governs the affairs relating to the promotion and regulation of international trade. The main legislation concerning foreign trade is the Foreign Trade (Development and Regulation) Act of 1992. This Act replaced the earlier Act namely, Import and Export (Control) Act 1947. The International Trade (Development, and Regulation) Act, 1992 provides for the development and regulation of International trade by facilitating imports into and augmenting exports from, India and for matters connected therewith or incidental thereto in the exercise of the powers conferred by the Foreign Trade (Development, and Regulation) Act, the Union Ministry of Commerce and Industry. The government of India generally announces the integrated Foreign Trade Policy (FTP) every five years with certain underline objectives. Foreign Trade Policy was earlier called Export Import Policy that is, EXIM Policy. However, the export-import policy is now referred to as the Foreign Trade Policy (FTP) of the country as it covers areas beyond export and import. This policy is updated every, in addition to changes that are made throughout the year.

For many years, after India's independence, India's trade policy was based on the assumption that it was not feasible for the country to achieve a very high rate of growth in exports. The main emphasis in the initial year of planning was on import substitution. Trade policy reforms over the last two decades have aimed at creating an environment for achieving a rapid rise in exports, raising India's share in world exports and making exports an engine for achieving higher economic growth. The period of the 1990s witnessed a perceptible change in trade policy. The focus of these reforms has been on liberalization, openness, transparency and globalization with a basic thrust on outward orientation focusing on export promotion activity, moving away from the quantitative restrictions and improving the competitiveness of Indian industry to meet global requirements. The entire foreign trade policy of India can be reviewed in two categories- Pre-reforms Period Trade Policy and Post-reforms Period Trade Policy.

In the pre-independence period, the direction of India's foreign trade was determined not according to the comparative cost advantage of India but by the colonial relations between India and Britain. In other words, it was Britain that decided from which countries India could import its requirements and to which countries it could export its products. Naturally, a major part of India's trade was either directly with Britain or its colonies or allies. With other capitalist countries like France, Germany, Italy, Japan, etc., India either did not have trade relations at all or they were very insignificant. This pattern continued for some years after independence since India had not till then explored the possibilities of developing trade relations with other countries of the world. As political and diplomatic contacts developed with other countries, economic relations also made headway. But in later years situation changed very much, and now after seven decades of planning, the trading relations exhibit marked change. Diversification in trade relations reduced the vulnerability of the economy to outside political pressures.

India's economic growth from 1960-61 to 1995-96 witnessed a structural transformation in production, consumption, employment, and foreign trade. Rapid industrialization over the years, redefined the role of the external sector, from the pursuit of an inward-looking strategy in the early sixties to the openness initiated since the nineties. This chapter focuses on the changes in the external sector scenario of the country, broadly by reflecting upon the trend in exports and imports, the respective change in the growth rate, and changes in the respective share of the national income, which indicates the importance of foreign trade in the overall economic activity of the country. Similarly, the change in the structure of exports and imports reflects the changes in the production pattern, as well as the changes in foreign and domestic demand; which reflect the level of development achieved by the country. Hence, it would be appropriate to examine the trend in exports and imports at the current price and constant price, along with the structural change in exports and imports of India for the period 1960-61 to 1995-96. The development of a large and diversified industrial sector, eventually transformed the composition of the export basket, from largely constituting primary products to the predominance of manufactured exports over the period. Therefore, it is important to examine not only the structural changes of exports and imports at the aggregate level but also at the disaggregate level.

Trade policy reforms in India, initiated in 1991, drastically changed the foreign trade scenario and have resulted in the shift from an 'inward-oriented' to an 'outward-oriented' strategy. With the sweeping liberalization process that is currently underway in the foreign trade sector, the level of protection for Indian Industry has declined significantly. This step was the beginning of the globalization process in the Indian economy. The globalization process has picked up the pace with the establishment of the World Trade Organization (WTO) in 1995. This new trading arrangement calls for massive cutting down of import tariffs and allowing more liberal imports of a number of goods whose imports were earlier either totally banned or severely restricted. The Indian Government, being a founder member of WTO, was under an obligation to strike down all quantitative restrictions on imports and reduce import tariffs so as to 'open up the economy to the world.

In the I950 and 1960s, India's belief was that through domestic production it can fulfil its home requirements. However, faced internal constraints like economic efficiency and technological standards and other compulsions like rapid industrialization. This was coupled with the external constraint of falling demand for Primary Products which was taken for granted as a foreign exchange earner to meet the import requirements. Hence, this called for definite attempts to induce larger openness in the structure of the domestic economy to make it internationally competitive. This was witnessed in the liberalization policy initiated in the 1980s and more rigorously from the 1990s onwards. While the attainment of national self-sufficiency remains the chief goal under the new strategy as under the earlier regime, the only difference is that the modalities of functioning have undergone a change.

Sanjib Kumar Sarma

(sanjibsarmabajali@gmail.com)