Introduction

 Trade reforms have had a positive effect on total factor

productivity growth by a Paul Romer type ‘endogenous
growth’ mechanisms where TFPG is positively impacted by
an increasing variety of capital goods.

 Trade reforms of the 1980s and 1990s allowed firms access

to capital and intermediate goods from abroad.
 The current trade policy reforms seem to have been guided
mainly by the concerns over globalization of the Indian
economy, improving competitiveness of its industry, and
adverse balance of payments situation. Main features of
trade policies (trade reforms) since 1991 are as follows:

1. Freer Imports and Exports:

Substantial simplification and liberalization has been
carried out in the reform period. The tariff line wise import
policy was first announced on March 31, 1996 and at that
time itself 6,161 tariff lines were made free.
2. Rationalization of Tariff Structure:
Acting on the recommendations of the Chelliah
Committee, the government has, over the years,
reduced the maximum rate of duty. The 1993-94,
Budget had reduced it from 110 per cent to 85 per cent.
The successive Budgets have reduced it further in
stages. The peak import duty on non-agricultural
goods is now only 12.5 per cent.
3. Decentralization:
A large number of exports and imports used to be
centralized through the public sector agencies in
India. The supplementary trade policy announced on
August 13, 1991 reviewed these centralized items and
decentralized 16 export items and 20 import items.
The 1992-97 policy decentralized imports of a number
of items including newsprint, non-ferrous metals,
natural rubber, intermediates and raw materials for
fertilizers.
4. Devaluation and Convertibility of Rupee on
Current Account:
The government made a two- step downward
adjustment of 18-19 per cent in the exchange rate of the
rupee on July 1 and July 3, 1991. This was followed by
the introduction of LERMS i.e., partial convertibility of
rupee in 1992-93, full convertibility on the trade
account in 1993-94 and full convertibility on the
current account in August 1994.
5. Trading Houses:
The 1991 policy allowed export houses and trading
houses to import a wide range of items. The
government also permitted the setting up of trading
houses with 51 per cent foreign equity for the purpose
of promoting exports.
6. Special Economic Zones:
A scheme for setting up Special Economic Zones
(SEZs) in the country to promote exports was
announced by the government in the Export and
Import Policy of March 31, 2000. The SEZs are to
provide an internationally competitive and hassle-free
environment for exports and are expected to give a
boost to the country’s exports.
7. Agriculture Export Zones:
The Exim Policy 2001 introduced the concept of Agri-
Export Zones (AEZs) to give primacy to promotion of
agricultural exports and effect a reorganization of our
export efforts on the basis of specific products and
specific geographical areas.
Features of Trade Policy Reform in
India
 Rationalization of tariff structure/reducing tariffs.
 Decentralization.
 Free imports and Exports.
 Liberalization of the exchange rate regime.
 Setting up of trading houses, SEZ’s and Export
promotion industrial parks.
 Various exemptions under the EXIM policies to boost
exports and imports and make the trade policy regime
transparent and less cumbersome.
Trade Policy Reforms in India
 The most significant step for trade policy reform in
India was in the 1990s, to move away from import
substitution and enhance reliance on the international
economy. Since 1991, India has been gradually moving
away from a closed and protectionist economy and has
been orienting itself towards the market, both in
terms of disinvestment (privatization) and opening
up markets to foreign players (liberalization).
 The trade reform was accompanied by major
modifications of the labor regime in order to reduce labor
rigidities, and reforms in the financial sector for the
purpose of enhancing resource mobility. The purpose of
the trade reforms was to expose domestic producers to
international competition, increase efficiency, accelerate
growth and reduce at the same time the prices faced by
consumers.
 However, in adapting to such a market oriented
economy, it has not assumed a “shock therapy”
approach and has instead embraced a gradual
approach.2 Unlike many countries, such as in Latin
America and Eastern Europe, India did not succumb to
international pressures (from IMF or the World Bank)
to liberalize overnight and went in for unilateral
liberalization.
CONCLUSION:-
Trade reform programs have two
main objectives.
The first is to help raise economic growth and
employment generation by improving resource
allocation and economy wide efficiency.
The second is to help improve the balance of
payments by strengthening the competitiveness
of the external sector and expanding exports
and efficient import substitutes.
 Trade policy reform, when implemented well,
has contributed to improved economic
performance in developing countries. The
paper also finds that well-designed trade policy
reforms do not conflict with other priorities
except in special cases; usually they enhance
growth.