POSITIVE EFFECTS

India's trade policy has undergone a significant transformation over the years, and the 1991
economic reforms, also known as the "New Economic Policy," have been a game-changer for
the country. This shift marked a departure from the previous protectionist model to an open
and liberalized trade regime that aimed to boost India's global competitiveness, encourage
foreign investments, and promote exports. In this blog, let's take a closer look at the positive
effects of India's trade policy, especially the New Economic Policy, on the country's
economy.
One of the biggest advantages of India's trade policy is the increase in foreign investments
and exports. With liberalized trade policies, the country saw a surge in foreign investments,
leading to job creation and a boost in economic growth. In addition, India's trade relations
with other countries have improved, allowing for greater integration into the global economy
and expanding opportunities for Indian businesses to export their products to other nations.
This has been instrumental in expanding the economy and improving the living standards for
the people of India.
Another positive effect of India's trade policy is the shift from an import-substitution model
to an export-oriented one. The policy has enabled new industries to emerge, making them
more competitive in the global market. This shift has promoted a free-market economy,
driving innovation, efficiency, and competition, ultimately leading to overall growth in the
Indian economy.
India's trade policy has also resulted in the development of new infrastructure, such as
improved transportation, communication, and energy infrastructure. These improvements
have facilitated trade and investment, leading to the growth of other sectors, such as tourism
and real estate. The development of infrastructure has also led to greater connectivity
between regions, encouraging the growth of trade in previously underserved areas.
The liberalization of trade policies has also reduced trade barriers such as tariffs, non-tariff
barriers, and quotas, making Indian exports more competitive in the global market. This has
resulted in the development of new export-oriented industries, job creation, and an improved
overall business environment.
The Foreign Trade Policy of 1992 was another significant change in India's trade policy. The
policy aimed to promote exports and reduce imports by providing several incentives for
exporters, such as tax exemptions, reduced tariffs, and financial assistance. This policy
encouraged the development of new export-oriented industries and helped existing industries
to expand their exports, contributing to the overall growth of the Indian economy.
The introduction of Special Economic Zones (SEZs) in 2000 was another significant change
in India's trade policy. These zones were established as special enclaves with several tax
exemptions, reduced tariffs, and other incentives for businesses. The aim was to attract
foreign investments, promote exports, and create new jobs. The SEZs have led to the
development of new export-oriented industries and helped Indian businesses to become more
competitive in the global market.
While the liberalization of trade policies has had many positive effects, there have also been
some challenges. The most significant challenge has been the adverse impact on the
agricultural sector, with farmers facing tough competition from cheaper imports due to the
reduction of tariffs on imported goods. The government has implemented several policies to
support the agricultural sector, such as subsidies and price support, to address this issue.
In conclusion, India's trade policy, particularly the New Economic Policy, has had many
positive effects, such as increased foreign investments, the shift to an export-oriented model,
the development of new infrastructure, and the reduction of trade barriers. These changes
have led to significant improvements in India's economy, making it a more attractive
destination for foreign investments and increasing the standard of living for its citizens.
While there have been challenges, the government has implemented policies to address them,
ensuring that the benefits of trade liberalization are shared equitably across all sectors of the
economy.

NEGATIVE EFFECTS
India's trade policy underwent a significant transformation in 1991 when the government
introduced the New Economic Policy. This policy marked a departure from the previous
protectionist model to an open and liberalized trade regime that aimed to boost India's global
competitiveness, encourage foreign investments, and promote exports. While the policy has
had many positive effects on the Indian economy, it's essential to acknowledge that there
have also been some negative impacts that cannot be ignored.
One of the most significant negative effects of India's trade policy has been the impact on
small-scale industries. With the liberalization of trade policies, small-scale industries have
struggled to compete with large multinational corporations. It's heartbreaking to know that
these small businesses often lack the resources and technology to compete with larger firms,
leading to their gradual decline. As a result, many hardworking people have lost their jobs
and income, and their families have been affected.
Another negative effect of India's trade policy has been the widening income inequality.
While the policy has brought significant benefits to certain sectors of society, such as the
middle and upper classes, it has not been equally beneficial for all. It's alarming to know that
the benefits of trade liberalization have not been distributed equitably, leading to a widening
income gap between the rich and poor. This has resulted in social unrest and political
instability in some regions of the country.
The liberalization of trade policies has also led to the concentration of wealth in the hands of
a few large corporations. This has led to the domination of certain industries by a small
number of players, limiting competition and stifling innovation. It's unfortunate that it has
also led to the formation of cartels, which have resulted in the manipulation of prices and
reduced the overall welfare of consumers.
Another negative impact of India's trade policy has been the adverse effect on the
environment. The growth in exports has led to an increase in resource extraction and
pollution, leading to environmental degradation. It's saddening to see that industries that are
heavily dependent on natural resources have not been regulated effectively, leading to the
depletion of resources and damage to the environment.
The reduction of tariffs on imported goods has also led to the influx of cheaper foreign goods,
which have negatively impacted domestic industries. It's disheartening to see that domestic
industries have faced stiff competition from imported goods, leading to a decline in their
market share and profitability. The reduced demand for domestic products has resulted in job
losses and reduced income for workers in these industries.
The Foreign Trade Policy of 1992, which aimed to promote exports and reduce imports, has
also led to a trade imbalance. The policy has led to a focus on exports, neglecting the
development of the domestic market. This has resulted in a trade deficit, with imports
exceeding exports, leading to a significant drain on the country's foreign exchange reserves.
In conclusion, India's trade policy since 1991 has had some negative effects, such as the
impact on small-scale industries, widening income inequality, concentration of wealth,
adverse impact on the environment, increased competition from cheaper foreign goods, and a
trade imbalance. While the liberalization of trade policies has brought many benefits to the
Indian economy, it's essential to address the negative impacts to ensure that the benefits of
trade liberalization are shared equitably across all sectors of society. We need the government
to take urgent steps to implement policies that promote innovation, protect small-scale
industries, regulate industries that negatively impact the environment, and ensure that the
benefits of trade liberalization are distributed equitably across all segments of society. We all
need to work together to make sure that we create an economy that's beneficial for everyone,
not just a select few.

Trend analysis
India's trade policy has undergone significant changes since 1991, when the government
began liberalizing its trade regime, reducing tariffs, and opening up the economy to foreign
investment. The following trend analysis provides a quantitative assessment of the effects of
India's trade policy from 1991-2022.
1. Liberalization of Trade: In 1991, the average applied tariff rate in India was 110%,
but this rate was reduced to 34% by 1997. As a result, India's trade with the rest of the
world increased significantly. According to World Bank data, the value of India's
merchandise exports increased from USD 18.53 billion in 1991-92 to USD 348.23
billion in 2021-22 (April-January), marking an 1,778% increase over the past three
decades.
2. Growth in Exports: The growth in India's exports was driven by the services sector,
particularly IT and Business Process Outsourcing (BPO). The value of services
exports increased from USD 7.08 billion in 1991-92 to USD 205.57 billion in 2021-
22 (April-January), marking an increase of 2,801% over the same period.
3. Increase in Imports: As India's economy grew, it needed more inputs and capital
goods to sustain its growth. Consequently, the value of India's merchandise imports
 increased from USD 21.42 billion in 1991-92 to USD 483.38 billion in 2021-22
(April-January), marking a 2,156% increase over the past three decades. The value of
services imports also increased from USD 7.56 billion in 1991-92 to USD 123.61
billion in 2021-22 (April-January), marking an increase of 1,534% over the same
period.
4. Trade Deficit: Despite the growth in exports and imports, India has consistently
maintained a trade deficit since liberalization began. The trade deficit increased
significantly from the mid-2000s, reaching a peak of USD 196.16 billion in 2017-18
before decreasing to USD 98.56 billion in 2020-21. This trend can be attributed to a
combination of factors such as the high value of oil imports and an increase in imports
of capital goods and electronics.
5. Free Trade Agreements (FTAs): India has signed several FTAs with countries such as
Japan, South Korea, and the Association of Southeast Asian Nations (ASEAN) to
increase trade and investment. However, these agreements have been criticized for
leading to an increase in imports, which can negatively impact domestic industries.
For instance, after signing the ASEAN-India FTA, India's trade deficit with ASEAN
countries increased from USD 5.3 billion in 2009-10 to USD 21.8 billion in 2019-20.
6. Bilateral and Multilateral Trade Disputes: India has been involved in several trade
disputes with its major trading partners, including the United States, China, and the
European Union. For instance, in 2018, the US imposed tariffs on steel and aluminum
imports from India, and India responded by imposing tariffs on 28 US products. In
2020, India and China had a trade dispute over India's ban on several Chinese apps,
which led to a decrease in India's imports from China.
In conclusion, India's trade policy since 1991 has led to significant growth in exports and
imports, and has contributed to India's economic growth. However, the country's persistent
trade deficit and trade disputes with major trading partners are challenges that need to be
addressed. Going forward, India needs to focus on diversifying its export basket,

Trade Policy 2015-2020: Key Aspects

Objectives:
It aims at doubling the overseas sales to $900 billion by 2019-20.

It provides a framework for increasing exports of goods and services as well as generation of
employment and increasing value addition in the country, in line with the 'Make in India'
program.

Integrating foreign trade with the "Make in India" and "Digital India" Programme.

Salient features:
 MEIS scheme: A single Merchandise Exports from India Scheme (MEIS) has been
formulated by merging five existing schemes to promote merchandise exports.
  The incentives are to be provided in the form of duty scrips as % of FOB (free on
board) value of exports.
 SEIS scheme: The Services from India Scheme (SFIS) has been replaced by Service
Exports from India Scheme (SEIS). SEIS will be only for India-based service
providers and will be based on net foreign exchange earned.
 Both the SEIS and MEIS schemes apply to SEZ units.
 To ensure trade facilitation and ease of doing business, Paperless Trade and Online
filling of forms have been provided.
 E-commerce export applies to items worth up to Rs 25,000 per consignment.
 Provision for Export oriented units (EOUs), Export hardware technology park, and
software technology park.
 The Duty-free scrips (a form of credits) are provided to the exporters under various
export promotion schemes of the government. The scripts may be transferable or
nontransferable.

Achievements
2015 policy, which focused on improving India's performance in existing
markets/products and exploring new markets/products - has been praised as
"progressive" for the following reasons:
 It consolidated a range of export incentives with different eligibility criteria into two
schemes � the Merchandise Exports from India Scheme (MEIS) and Services
Exports from India Scheme (SEIS).
 It offered export incentives under these two schemes in the form of duty credit scrips,
which can be used by exporters to pay import duties. The scrips are fully transferable,
which means that if an exporter does not need them, they can pass them on to another.
 It reduced export obligation from 90% to 75% for capital goods sourced from local
manufacturers under the Export Promotion Capital Goods Scheme (EPCG).
 It allowed manufacturers who are "status holders" (entrepreneurs certified by the
DGFT as having helped India become a major export player) to self-certify their
manufactured goods as originating from India. This helps them qualify for preferential
treatment under various bilateral and regional trade agreements.
 It identified 108 micro, small and medium enterprise (MSME) clusters for focused
interventions to boost exports. 
 It promoted the paperless processing of various DGFT licenses and applications.

Failures
The policy has also had its fair share of criticism. Some of its provisions have been
challenged at the World Trade Organization (WTO) by the United States. Some sticking
points:
In 2019, a WTO dispute settlement panel, acting on Washington's complaint, said India's
export subsidy provisions violate WTO rules and must be withdrawn. These include tax
incentives under the popular MEIS and SEIS. As India's per capita gross national product is
over $1,000 per annum, it can no longer offer subsidies based on export performance, the
panel ruled. This controversy reinforces the growing view in India that the country needs to
move away from subsidies and think of other ways to help its exporters.

There is a strong belief in India (bolstered by its trade policy) that free trade agreements
(FTAs) haven't worked for it. One indication of this came in November 2020 when India
decided to not be a part of the Regional Comprehensive Economic Partnership (RCEP), the
world's largest FTA. Experts and economists believe this cost India a golden chance to be a
major player in exports.

Foreign Trade Policy, 2021-2026

It will come into effect from 1st April 2021 for five years. It will strive to make India a leader
in the area of international trade to make India a USD 5 Trillion economy.
 By boosting exports: both merchandise and services, through Systematically
addressing domestic and overseas constraints related to the policy
 Regulatory and operational framework for lowering transactions costs and enhancing
the ease of doing business,
 Creating a low-cost operating environment through efficient, cost-effective, and
adequate logistical and utility infrastructure.

Significance
 Correcting the imbalances within India: By improving operations of the domestic
manufacturing and services sector in combination with efficient infrastructure
support.
 Growth and employment: By channelizing the synergies gained through merchandise
and services exports.

Conclusion
Over the past few decades, significant transformations are happening in terms of growth as
well as trends of flows and patterns of global trade. The increasing importance of developing
countries has been a salient feature of the shifting global trade patterns. Fundamental changes
are taking place in the way countries associate themselves with international trade and
investments.

Trading through regional arrangements which foster closer trade and economic relations is
shaping the global trade landscape in an unprecedented way. Alongside, the trading countries
also have devised ingenious policies aimed at protecting their economic interests.
Summary
The economic reform policy adopted by the Indian government has had a positive impact on
the value and volume of trade. India's exports, imports, and unfavorable trade balance have
all expanded greatly during the post-reform period. While most of these changes have been in
line with the developmental needs of the economy, the persistent growing deficit in trade
balance requires immediate attention.
The cumulative deficits in the balance of payment (BoP) of India arise due to the trade deficit
problem. Although the pace of India's export growth has not been significantly high during
most of the post-reform periods (1993-2005), it has accelerated since 2002. While exports
and imports were higher during the post-reform period compared to the pre-reform period, it
is observed that the growth rate of imports is higher than the growth rate of exports.
Additionally, the gap between the share of imports to GDP and the share of exports to GDP is
wider in the post-reform period compared to the pre-reform period.
One effective way to reduce the trade deficit in key sectors is to promote domestic
manufacturing. This can be achieved by implementing an effective import substitution policy
and sustaining the competitiveness of export-oriented industries, while also ensuring the free
flow of exports from India to developed countries. The challenges faced by exports-
industries, particularly MSME (micro, small, and medium enterprises) players suffering from
a lack of information, should be addressed adequately. This will close the knowledge deficit
of MSMEs about government schemes and foreign trade strategy, creating competency and
more participation in foreign trade. Adding new products to the exports basket and
identifying their major markets can help to further boost exports.

Sources of Data
1. Ministry of Commerce and Industry, Government of India
2. World Bank
3. Reserve Bank of India
4. World Trade Organization
5. United Nations Conference on Trade and Development
6. International Monetary Fund
7. Central Statistics Office, Government of India
8. Department of Industrial Policy and Promotion, Government of India
9. World Economic Forum
10. Economic Survey of India.