INDIA’S FOREIGN

TRADE POLICY
Submitted By: Monica R – F09039
4 a) India’s Foreign Trade Policy

Pre-Liberalization

Post independence, India concentrated on domestic economy rather than foreign economy.
Nehru wanted to develop through foreign aid, technology upgradation to enhance rapid
industrialization. But Gandhi’s principle was self-reliance and agrarian economy.

In the initial period of planning India has adopted restrictive trade and import substitution policy
till 1970s. During this period public sector has assigned a major role to play in economic
development of the country, on the other hand private sector play its role with regulation.

However, at the end of 1970s and beginning of 1980s India has changed its foreign trade policy
from restrictive trade to liberal trade policy.

 The Indian economy was indeed in deep trouble.

 Lack of foreign reserves.
 Gold reserve was empty.
 Before 1991, India was a closed economy.
 The government was close to default and its foreign exchange reserves had reduced to the
point that India could barely finance three weeks’ worth of imports.
 India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF),
which in return demanded reforms.

Post Liberalization

The era of License raj got over. The investment, industrial and import licensing were removed.
Reduced tariffs and interest rates and ended many public monopolies, allowing automatic
approval of foreign direct investment in many sectors

By the turn of the 20th century, India became a free-market economy, with decentralization in
state control of the economy and increased foreign investments and liberalization of financial
services.
The principal objectives of the Export Import Policy 1997 -2002 are as under:

 To accelerate the economy from low level of economic activities to high level of
economic activities by making it a globally oriented vibrant economy and to derive
maximum benefits from expanding global market opportunities.
 To motivate sustained economic growth by providing access to essential raw materials,
intermediates, components,' consumables and capital goods required for augmenting
production.
To improve the technological strength and efficiency of Indian agriculture, industry and
services, thereby, improving their competitiveness.
 To create new employment. Opportunities and encourage the attainment of
internationally accepted standards of quality.
 To give quality consumer products at practical prices.

The main objectives of the Export Import Policy 2002-2007 are as follows:

1. To encourage economic growth of India by providing supply of essential raw materials,

intermediates, components, consumables and capital goods required for augmenting
production and providing services.
2. To improve the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities and encourage the attainment of internationally accepted standards of
quality; and
3. To provide consumers with good quality products and services at internationally
competitive prices while at the same time creating a level playing field for the domestic
producers.

Current UPA Government

The foreign trade policy announced by the UPA Government in 2004 had set two objectives,
namely
(i) to double our percentage share of global merchandize trade within 5 years and
(ii) use trade expansion as an effective instrument of economic growth and employment
generation.

From 2009-2014, the focus of Foreign trade would be:

1) Higher Support for Market and Product Diversification

2) Technological Upgradation
3) EPCG Scheme Relaxations
4) Support for Green products and products from North
East
5) Value added manufacturing
6) Reduction of Transaction Costs
7) Special reforms for handloom, power, agriculture, tea, pharma
8) EOUs- EOUs have been allowed to sell products manufactured by them in DTA upto a
limit of 90% instead of existing 75%.
The short term objective of the policy would be to set a policy objective of achieving an annual
export growth of 15% with an annual export target of US$ 200 billion by March 2011.By
2014,we expect to double India’s exports of goods and services. The long term policy objective
for the Government is to double India’s share in global trade by 2020.
Improvement in infrastructure related to exports; bringing down transaction costs, and providing
full refund of all indirect taxes and levies, would be the three pillars, of this objective. Goods and
Services Tax should rebate all indirect taxes and levies on exports.
b) BALANCE OF PAYMENT

India imports the following goods:

 Food and Allied Products,
 Fuel
 Fertilizers
 Capital Goods
 Chemicals
 Pearls, Precious, Semi-precious Stones
 Gold & Silver
 Electronic Goods
Except the food and allied products, the import of all other goods have been reduced in the last
year.
The directional pattern of India’s trade has been changing constantly during the decade with the
share
of the top 15 trading partners increasing by 9.5 % to 61.3 % in between 2004-05 and 2008-09. In
the first half of 2009-10, their share was 59.6 per cent. The major development in the direction of
India’s trade is that USA which was in the first position in 2007-08 has been relegated to the
third position in 2008-09, with UAE becoming India’s largest trading partner, followed by
China. However, in the first half of 2009-
10, with oil prices moderating, China has gained a slight edge over the UAE to become India’s
major
trading partner.
In 2008, India had a global export share of 1% or more in 42 out of a total of 99 commodities.
Three items, vegetable textile fibres, paper yarn, woven fabric; vegetable plaiting materials,
vegetable products and residues, wastes of food industry and animal fodder, had an increase in
global share by 0.5 per cent.

The above data show that India is in a developing mode with most industries showing double
digit growth.
How balance of payment is affected?
Introduction of Special Economic zones with meager infrastructure has caused a lot of capital
expenditure. But the revenue from the industries are yet to be realized. However on the long run,
the exports from these zones along with the taxes are going to bring in additional revenue
thereby reducing the fiscal deficit.
To improve conditions of Balance of payments,
1) India should open up FDI in food and processed food sector where the imports are very
high.
2) Indian companies should own the products rather than giving just services for the
products manufactured outside India.
3) The number of Patents submitted should be multiplied.
4) More bilateral pacts with countries like Japan would decrease the cost of imports and
thereby improving the balance of payments.
5) India should move over to alternative sources of energy to avoid the dependence on oil
imports.