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India's Trade with the World: Retrospect and Prospect

Trade and Migration

This paper chronicles the development of India’s trade regime, with a focus on the late 1980s’ and early 1990s’ reform of regulations and restrictions governing foreign trade and its subsequent effect on current and future policies. India’s early trade regime was characterized by protectionist policies that frustrated demand for vital imports and severely constrained export growth. These policies led to a foreign exchange shortage that, coupled with an expansionary fiscal policy, led to a balance of payments crisis in 1991. Although some reforms had been implemented in proceeding years, the crisis provided the impetus for a dramatic restructuring of the trade regime that has seen exports rise from six percent to 15 percent of GDP.

The reforms led to immediate and widespread changes in the Indian economy. By now, quantitative restrictions are a thing of the past, tariffs have been reduced to small fractions of their earlier rates, the exchange rate regime has been much more stable and realistic for traders, and foreign investment is now substantially freer than it was—in all, graphic testimony to the extent and effectiveness of India’s policy changes.

Whether these reforms are enough to sustain growth, however, is questionable. Further reductions in trade barriers and labor market restrictions, improvement in agricultural productivity, and an increase in employment opportunities in general and unskilled labor-intensive activities for the export market in particular are needed to ensure India’s continued economic growth.

374wp.pdf (423.42 KB)
Author(s)
Anne O. Krueger
Publication Date
December, 2008