Ajmst050207 PDF
Ajmst050207 PDF
ISSN -2347-5005
Pooja Yadav
Research Scholar
Banaras Hindu University, Varanasi
ABSTRACT
Foreign trade has been playing a vital role in the economic progress and prosperity of every country.
In modern days foreign trade has assumed an immense prominence and substance for economic
development of a country because of interdependence of economies, increasing specialization and
joining regional cooperation. In 1991, the major program of economic reform were introduced which
emphasize on external sector wherein the protective tariffs were decreased, changes into foreign
investment and the restrictive import licensing system was relaxed and simplified. After the New
economic reforms, India’s foreign trade has undergone substantial changes, volume of trade rose up
and composition of trade was also frequently changed. The main objective of the paper is to study the
trends of India’s foreign trade pre and post new economic reforms in India. The entire data for the
present study is collected from the secondary sources. The collected data has been analyzed by using
Paired t-test from SPSS software package and graphs. The findings of this paper said that there is
positive relationship between economic reforms and India’s foreign trade. A push has been given to the
exports but analyzes says that the increasing rate of imports is higher in comparison to the increasing
rate of exports.
keywords: Foreign Trade, New Economic Reforms, Exports, Imports, Growth Rate.
1. INTRODUCTION
A country’s position in the international scenario is evaluated by its economic power. The economic
strength of a country depends upon its various economic components. One of the most important
economic components is the foreign trade of the country. Foreign trade has been playing a vital role in the
economic progress and prosperity of every country. In modern days foreign trade has assumed an
immense prominence and substance for economic development of a country because of interdependence
of economies, increasing specialization and joining regional cooperation. Foreign trade has worked as
“Engine of Growth” for developing countries like India. The foreign trade of any nation comprises of
inward and outward movement of goods and services, which ultimately affects the inward and outward
flow of foreign exchange from one country to another.
For providing, regulating and creating necessary environment for its orderly growth, several Acts have
been put in place. The international trade of India is directed by the Foreign Trade Development &
Regulation Act, 1992 and the rules and orders issued there under. The physical movement of goods and
services through various modes of transportation and Payments for Export and Import transactions are
governed by Custom Act, 1962 and Foreign Exchange Management Act, 1999 respectively. (Sahu, 2017)
An analysis of foreign trade indicates the composition and the determinants of foreign trade. By
composition is meant the various commodities exported and the various commodities imported by
country. By determinants is meant the factors that influence the value of the exports and the value of the
imports. Based on these criteria, the countries could be classified either as developed countries or as
developing countries. In today’s world, nations cannot exist on economic isolation. In other words, we
can say that any country in the world cannot claim that it is self-sufficient to possess facilities for
economical production of all goods and services that are consumed by its people. Some nations have rich
in natural resources and agricultural products such as fertile soil, timber, fossil fuels, tea, rice, pulses etc.,
while other nations have scarcity of many of these resources. So, there is a need of international trade for
the benefit of countries.
Government had implemented the policy of export pessimism and import substitution. During the period
of 1971-1991, export performance had improved. In the late 1960s, Government of India took significant
steps like establishment of Indian Institute of Foreign Trade (IIFT) and others such institutions for the
promotion of foreign trade. The world economy was also showing rapid growth during 1970s. The growth
rate of exports was 15.8 percent in 1970s, which declined to 8 percent in 1980s. The decade of 1970 also
witnessed an upsurge in the imports, resulting in a higher growth rate for imports as compared to exports.
The export was flourishing at the time of 1970s, however, showed a declining trend during the starting of
1980s. During the second half of the 1980s, due to recovery in the world economy, the exports of India
grew at a significant rate (17.8 percent). There was found an unquestionable improvement in the
competitive position of India in terms of trade during the period as a result of the increased export
subsidies. India has a very high rate of merchandise trade growth compared with per capita income. For
instance, compound annual growth rate of merchandise trade are rises from 9 percent to 21 percent in
1990-95, whereas per capita income has moved slowly to about 8 per cent over 2000-05 from around 6
percent in 1990-95. (Yadav, 2012)
India adopted New Economic Reforms in 1991 for the improvement in the economy and country’s
growth. Economic Reforms comprises that the introduction to inventive policies such as abolishing the
market trade barriers, boosting economic participation in private sector, decrease in the fiscal deficit, an
increase in exports and reducing imports, etc. for increasing the growth rate of the economy. Thereafter,
the government of India has announced many programs related to Economic Reforms in India.
Liberalization, Privatization and Globalization (LPG) model is one of them. The concept of globalization
and liberalization was introduced in this era and it got momentum through process of economic
integration. In the post liberalization period, rate of growth of import and export increased manifold.
Many export promotion policies were started after liberalization. Various schemes have been introduced
by the government from time to time to encourage exports, such as Export Promotion Capital goods
(EPCG), Duty Entitlement Passbook (DEPB), Software Technology Parks (STPs), Special Import
License (SIL), Agri Export Zones (AEZ), Export Oriented Units (EOUs), Duty Free Replenishment
Certificate (DFRC), Special Economic Zones (SEZs), Electronics Hardware Technology Parks (EHTPs),
and Biotechnology Parks (BTPs).
In 1991, the major program of economic reform were introduced which emphasize on external sector
wherein the protective tariffs were decreased, changes into foreign investment and the restrictive import
licensing system was relaxed and simplified. This policy mainly focused on liberalization of capital goods
and imports from industry for encouraging the domestic and export oriented growth. India’s trade was
changed significantly into the post reform periods. After the New economic reforms, volume of trade rose
up and composition of trade was also frequently changed. India’s chief exports involve machinery items,
chemicals, precious and semi-precious stones and electronic goods. On the other hand, side major imports
were involved fertilizers, gold, petroleum and petroleum products. Through the introduction to new
economic reforms, there was also an enlargement of the direction of India’s foreign trade with the new
other countries and regional trading blocs. Before these reforms, India’s exports were limited to OECD
and OPEC countries but after the new economic policy our country turn towards the new Asian countries
and consequently China became a major trading partner of India. In terms of direction, traditionally EU
and USA was the major trading partners of India but from the last few years this scenario has been
changed and India’s trade is increasing with mainly East Asian countries.
In the late 1980s, Due to the long term reduced economic performance under protectionist policies, India
started eliminating their trade barriers for the improvement of economic development of the country.
During the time of independence, India’s foreign trade was typically a colonial and agricultural economy
and our trade relationship were mainly limited to U.K. During the period 1950 -1990, India’s foreign
trade suffered from strict administrative controls. In 1991, the Indian Government introduced the
economic reforms policy of the liberalization and globalization of Indian economy. After the
establishment of economic reforms, India’s foreign trade has started increasing. The trade policy of India
has undergone various changes time to time and the major changes involved simplification of processes
and techniques, elimination of quantitative restrictions and reduction in the tariff rates. On the other side,
after the liberalization and globalization the foreign trade has been playing a very important role in
increasing the GDP level of India. The foreign trade acts as an engine of growth of India’s trade in terms
of increase in Export and Import. Thus, it is essential to understand the trend of the foreign trade since
1991.
4. LITERATURE REVIEW
Misra, Jena and Shil (2011), analyzed and evaluated the India’s foreign trade position in terms of volume,
composition and direction during the post liberalization period. This study also suggest the ways and
means for improving foreign trade of India on the basis of the observation of the study. Yadav (2012),
explained the regional patterns of inflows and outflows of trading activity which includes the changes in
commodity composition and direction. With this background this study is suggested that globalization has
directed to specialization of production and expansion of consumption. Finally, it can be conclude that
manufacturing sector has increased its share vis-à-vis other tradable sectors and Indian trade is gradually
moving away from low value-added product. Singh (2014), analyzed the trend and composition of
international trade during the post liberalization era and also determine the effect of foreign trade on the
economic growth of India. This study shows that though the total exports and imports both have improved
but the growth rate of imports is higher in comparison to the growth rate of exports. Major portion of
exports comprises the manufactured goods while petroleum and crude products hold the major portion of
the imported goods. It is also found that there is positive relationship between export and economic
growth while imports are negatively related with the economic growth of India. Jadhav and Satpute
(2014), evaluated India’s direction and composition of foreign trade for the period 2003-04 to 2012-13. It
may be found that there has been a gradual increase in India’s export and imports and also there is a rise
in trade deficit. India has good trading associations with all the topmost countries in the world. More than
50% of India’s total export is with Asia and ASEAN region and about 60% of India’s total imports are
with the same countries. As far as India’s composition of foreign trade is concerned it also has undergone
major changes after independence. With the industrialization of the economy, compositions of export
have undergone changes. India now exports items such as machinery, chemicals and marine products.
Thus, we can say that India now export the same items which we once use to import. This is a good sign
for one of the fastest emergent economies in the world. So in the present research study effort has been
made to cast light upon India’s direction and composition of foreign trade especially after 2000. Mr. A.
Harikumar (2014), examined the foreign trade of India during pre and post the liberalization period. This
study found that with the Liberalization, Privatization and Globalization of the Indian economy and
following liberal foreign trade, there had been changes in the business environment. With the
development of science and technology there is a change in the nature of the Indian economy. There had
been increase in the trade volume in the India’s international trade, and the exports from India also have
increased. Sachin N. Mehta (2015), examined the trend outline of India’s Exports, Imports and Total
Trade during the pre and post New Economic Policy program with the time series data from 1971 to 2013.
Further, this study also analyzed the impact of New Economic Policy on Exports, Imports and Total
Trade of India using paired sample‘t’ test. It suggests that there is more increment in the growth rate of
imports in comparison to growth rate of export. The outcome of paired sample “t” test suggests that there
was positive impact of new economic policy on India’s Exports, Imports and Total Trade. It means after
the new economic policy India’s Exports, Imports and Total Trade had increased significantly. Matore
and Sagar (2015), concluded that, the exports was rises at a decreasing rate but the imports are rises at an
increasing rate. As a result, the balance of trade is becoming unfavorable to India during the post
globalization period. It is a significant achievement for India that we have changed ourselves from a
mainly primary goods exporting country into a non-primary goods i.e. manufactured goods exporting
country. Kumar and Sood (2016), examined the growth of foreign trade and balance of payments in pre
and post reforms period. This study also suggest to ways and means for accelerating India’s Foreign
Trade. Therefore, the fact that introduction of economic reforms had a positive impact on India’s foreign
trade, cannot be denied. A push has been given to the exports but the increasing rate of imports is higher
in comparison to the increasing rate of exports. As a consequence of it economic reforms have not
flourished in correcting trade imbalance. Kabita Kumari Sahu (2017), examined the India’s foreign trade
pre and post liberalization in India. This study found that the total trade after liberalization has been
significantly higher than the total trade before liberalization and the imports were more than the exports in
all the years. Thus, the liberalization period is effective insignificantly increasing the export of India. This
study is suggested that import restriction is necessary on non-essential items to narrow down the trade
deficit.
5. OBJECTIVE OF THE STUDY
The prime objective of the study is to examine the trade pattern of India’ Foreign Trade for a period of
twenty one years before and twenty one years after the new economic reforms period (1991-1992).
7. RESEARCH METHODOLOGY
7.1. Period of the study:
The present study examines the India’s foreign trade for a period of twenty one years before (1970-71 to
1990-91) and twenty one years after (1992-93 to 2012-2013) the new economic reforms period (1991-92).
The study is mainly based on secondary sources of data. The data has been collected from sources like
different issues of the Handbook of Indian Statistics, the Economic Survey, and the website of Ministry of
Commerce, RBI.
Table-2 and Graph-2 presents an analytical study of India’s Export and Import and also shows the
percentage of annual growth rate respectively. Exports and Imports grew with varying rates during the
period under study. In graph, values of exports and imports is showing significantly a rising trend.
Table 1 and 2 shows that general trend of India’s Overall exports during the period under study. It is
useful to mention that various policy measures introduced from time to time have a significant impact on
the value of exports. Indian exports have covered a long distance from the time of independence in terms
of value. In 1970-71, India’s merchandise exports stood at low level of 2031 million US dollars which
moved up to an all-time high level of 18143 million US dollars in 1990-91 before the pre-reforms period.
After the independence, exports have grown at a very slow rate. During 1950s the exports growth rate
was 3.6 percent in dollar terms. Various exports promotion scheme adopted in the 1970s. This has
resulted in an annual growth rate of exports in dollar terms is 6.01 % in 1971-72, 18.44 % in 1972-73,
25.84 % in 1973-74 and so on. The annual growth rate of exports was highest at 30.07 % in 1974-75
during the pre-reforms period under study. Thereafter, this rate was continuously decreasing with many
fluctuations and in the year 1985-86 this rate was recorded in negative values i.e. -9.86 %. In 1990-91, the
exports annual growth rate was 9.22 %. During post reforms era, Indian exports have shown remarkable
improvement principally from the period 1992-93 to 1996-97 and from 2002-03 to 2008-09. Exports
registered 1.8 times and 3.5 times rises in the year 1992-93 to 1996-97 and 2002-03 to 2008-09
respectively. In 2009-10, the exports was declined with the slight variation and recorded at 178751
million US dollars. After that the Indian exports have moved up and touch a new height of 305964
million US dollars in 2011-12. It was also a highest India’s exports during the period under study. Lastly,
in 2012-13 exports value has decreased and stood at 300401 million US dollars. Table-1 and 2 also shows
the Annual Growth rate of India’s exports during pre-reforms period as well as post-reforms period.
Regarding annual growth rate of exports, it was high in 1993-94 and 1994-95 at 19.97 % and 18.40 %
respectively, but declined sharply in 1996-97 to 5.26 %, and continuously till 1998-99 on account of the
South East Asian crisis and worldwide recession. It again recovered to 10.53 % and 20.05 % in 1999-00
and 2000-01 respectively. However, the global economic slowdown and the events of September 11,
2001 led to a steep fall in the growth rate of exports during 2001-02 (-0.56 %). The period since 2002-03
has recorded a steady export growth rate up to 2008-09 (13.59 %). The export growth rate declined to -
3.53 % in 2009-10 in view of the global meltdown. But in 2010-11, exports made a huge jump and thus
the growth rate of exports recorded at 40.49 % which was also the highest annual growth rate during the
post-reforms period under study. The growth rate values also registered in negative terms during the post-
reforms period, such as -5.11 % in 1998-99, -0.56 % in 2001-02, -3.53 % in 2009-10 and -1.82 % in
2012-13. The Annual growth rate of exports is fluctuating in both the periods because of many reasons. It
does not give the clear picture of growth of exports. Therefore, compound annual growth rate is
calculated. The CAGR % of post-reforms period is more than the pre-reforms period. The compound
annual growth rate of exports in the pre-reforms period was 11.57 % whereas in the post-reforms period it
went up to 14.94 %. The table clearly shows that exports have increased during post reforms period
although the impact of economic reforms on exports is not very significant but still it is positive.
Therefore through this analyses we can says that, India’s exports moved up with varying rates during the
period under study.
10. Lastly, this rate was recorded at 0.29 % in 2012-13. Data clearly shows that like exports annual
growth rate of imports in both the periods is also fluctuating because of many reasons. It does not give
clear picture of the growth rate of imports. Therefore, compound annual growth rate is calculated. The
CAGR % of post-reforms period is more than the pre-reforms period. The compound annual growth rate
of imports in the pre-reforms period was 12.80 % whereas in the post-reforms period it went up to 16.82
%. It can be said that economic reforms have increased imports significantly. The CAGR of Imports is
higher than that of exports even in the post reforms period. It is important to mention here that the Indian
exports are not increasing at expected rate instead imports are increasing because of liberalized trade
policies.
The mean value in post-reform period is more than the mean value in pre-reform period (Table-3). Hence
it can be said that the export in pre-reform period was less than the export in post-reform period. As per
the result of paired t-test, the p value (0.000) is less than the level of significance value 0.05, indicating
that there is significant increase in the exports after the post-reforms period.
10. CONCLUSION
This study investigates the effect of New Economic Reforms on Exports, Imports and Total Trade for
India using time-series data from 1970-71 to 2012-13. In this regard pre crisis and post crisis period trade
performance is compared on the basis of its value. Over the study period it has been concluded that
foreign trade of India has shown an increasing trend after the introduction of new economic reforms in
India. During the period under study, the volume of trade is increasing day by day with the many
fluctuations. The study also indicates that post reform era has certainly helped India in achieving high
growth of the economy. The result shows that in post-reforms period the exports and imports were more
than the exports and imports in pre-reforms period but it is also suggested that the growth rate of imports
was higher in comparison to the growth rate of exports. The null hypothesis has been rejected. So, the
study concludes that the introduction of economic reforms in India had a significant positive impact on
India’s foreign trade.
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