TRENDS IN TRADE POLICY OF INDIA
Hiaa Sharma, II year of B.B.A.,LL.B. (Hons.) from Himachal Pradesh National Law University Shimla
Trade or foreign trade, in particular, refers to the import and export of goods and services across the various countries of the world. It is a natural process as all the countries are not and cannot be self-sufficient in the production of each good and services. Foreign trade is a very ancient practice and has been prevalent since ancient times. The main reason for this is the uneven distribution of resources across the countries. A country, say X is efficient in producing wheat but lacks in cotton production, requires cloth as it is necessary to manufacture clothes. Another country says Y is efficient in producing cotton but lacks in production of wheat. This forms the base for trade.
India is also a part of this international trade practice since time immemorial. But the volume, composition and direction of trade have changed over the period. In 1950-51 India’s external trade was worth Rs. 1,214 crores which rose to Rs 22,09,270 crores in 2009-10 and further to 538.08 billion US Dollar in 2018-2019.
Being a developing country international trade is very important to the country. It is a major source of foreign income to the country. There is not an only influx of foreign goods and services but along with them, there is the flow of technology and skills. International trade poses certain challenges to the country as well. The challenges are in terms of upgrading technology, increasing productivity, reducing costs, and improving the quality of goods and services to meet international challenges. But these will eventually be fruitful and prosperous to the country as it will lead to a chain of events which will help in transforming the developing countries into developed countries.
G. Haberler remarked, “My overall conclusion is that international trade has made a tremendous contribution to the development of less developed countries in the 19th and 20th centuries and can be expected to make an equally big contribution in the future”.[i]
A trade policy or foreign trade policy refers to a set of rules, procedures and regulations that govern a country’s trade with other countries.
Some of the basic components of trade policy of a country are exports, imports, tariffs, quotas, inspections, product safety, agreements, treaties, conventions and other similar components. The need to form a trade policy for a country is that it helps in or it smoothens the functioning of international trade of a country.
There are various types of trade policies practiced by countries across the world.
Free trade implies that the laissez-faire trade policy, which means the government of the country, does not exert influence or exerts minimal influence on decisions relating to exports or imports made by private individuals and businesses.
The fairtrade policy involves the intervention of the government in the imports and exports of the country. The government acts as a controlling system and regulates trade through various barriers.
Outward oriented trade policy corresponds to free trade. It promotes imports and exports and increases competitiveness. In this policy, the countries produce those goods and services, in which they are efficient or have a competitive advantage, and earn foreign income by selling those goods and services.
Inward-oriented Policy focuses on producing those goods and services which the country feels they need to import. This policy does not promote import and export or international trade. It focuses on self-sufficiency.
Historical trade policies of India
India has been a great player in international trade since ancient times. But the trend did not remain the same at all times. There were different situations and conditions in which India adjusted accordingly. The major categories can be termed as the pre-British era, during colonialism, the eve of independence to 1990, the new economic policy of 1991 and the modern trend of trade policy.
In the pre-British era, India was a major contributor to the field of International Trade. It was a major exporter of finished goods such as fine cotton, silk, ivory work and precious stones. The trade took place with major economies of the world.
India had acquired an eminent position in international trade in the pre-British era but the period of British Colonialism posed negative effects of international trade. India was reduced as a mere exporter of raw material and importer of finished goods as was desired by the British Empire to aid their pace of Industrialization by using India as their slave. India had to supply or export the fine raw material to be used as primary products by the British Industries and had to import the finished products manufactured by the British Industries and few capital goods. This posed huge competition to indigenous industries of India as British goods were relatively cheap. This saw the destruction of local Indian industries. The trading countries also changed and India’s trade was confined only with the Britishers. Thus a kind of monopoly was established.
After independence, there were again significant changes in India’s Trade policy. The share of agricultural products in the composition of trade reduced. There was a significant rise in the exports of manufactured goods which was a positive sign for the development of the economy. The direction of trade or the trading countries of India has also changed since independence. The trade now expanded again with other countries as well besides British countries. During the decades of 1950s and 1960s, the trade policy of India had been inward-looking industrialization strategy which was heavily imported- substitution-oriented. The government of the country wanted to protect its new coming. It relied on import restrictions and import duties. India tried to save foreign exchange and focused on developmental imports only which consists of plant and machinery to be used for the growth and development of the country.
The policy of a closed economy had some negative impacts on the country. Various inefficient public sector economies mushroomed everywhere and monopoly practices started. The pace of growth and modernization was very slow and there was the economic crisis in the 1990s. This was due to poor economic policies and the resultant trade deficit. Therefore the LQP, Licensing Quota Permit Policy was replaced by New Economic Policy, LPG Liberalization Privatization Globalization 1991.
The Liberalization policy meant freedom to the country from direct or physical controls imposed by the government. Tariff restrictions were considerably lowered or made negligible to attract more and more of international trade. After protecting the infant industries of the country they were now exposed to the completion by multinational corporations. There was also the withdrawal of quantitative restrictions on all import items. Long term trade policies had been enforced. The open competition was encouraged. Monopolies and restrictive trade practices act were replaced by the competition act.
India is a growing force in world trade especially in the new forms of trade that involves information rather than physical goods. Bangalore the capital of Karnataka has become famous for its growing role in the global information technology industry.
India’s Foreign Trade Policy (FTP) consists of schemes to support the domestic exporting community. These include development policies that help set-up special trade and economic zones in different parts of the country.[ii]
The five-year trade policy of 2015-2020 provided for increasing the number of exports. It seeks to provide a stable and sustainable policy environment to the international trade in goods and the services. The initiatives of Make in India, Digital India, Skill India etc are combined to promote the diversification of India’s exportable goods. These initiatives are making Indian indigenous industries and several Indian sectors more efficient and competitive. The trade policy also provides for the up-gradation of the technology and development of the infrastructure. The trade policy has also been modified to the new tax system, the Goods and Services Tax.
The foreign trade policy provides for the government strategy for addressing the structural and institutional institutes which will aid in improving the international trade. It also defines the way trade and economic integration agreement with trade partners would work better for Indian organizations.
The foreign trade policy introduced two new schemes, Merchandise Exports from India Scheme, to offset infrastructural inefficiencies and associated cost involved in exporting goods which are produced or manufactured in India.
Services Exports from India Scheme, provided for rewards on net foreign exchange earnings, to service providers of notified service from India to the rest of the world.[iii]
The major trading partners of India in the year 2019 have been The United States of America, United Arab Emirates, China, Hong Kong, Singapore and The United Kingdom.
Recently the Prime Minister of India launched a new scheme, “Atmanirbhar Bharat” which means self-reliant or self-sufficient India. It does not mean that India should become a protectionist. It aims to transform India into a self-reliant country by working on five pillars that are economy, infrastructure, system, vibrant demography and demand. Making a country self-reliant and shifting focus towards local manufacturers and service providers will reduce the country’s dependency on imports from foreign countries and may eventually boost its exports.
The present coronavirus pandemic questioned the policies of trade. International trade was reduced significantly. India is also a prey to it. The pandemic affected international trade.
As a measure to decrease the adverse effects of the pandemic on international trade, the DGFT, Directorate General of Foreign Trade has extended India's Foreign Trade Policy 2015-2020 and Handbook of Procedures 2015-20, which were both due to expire on 31st March 2021. The ministry also introduced various other amendments in effect extending exemptions by one year and granting extensions on the validity period of status certificates, the validity of Duty-Free Import Authorization and Export Promotion Capital Goods Authorization for import purposes, dates of filing of various applications and returns.[iv]
Several other measures have also been taken to regulate the international trade during the pandemic such as the export ban on key medical supplies, issuance of procedural clearances for exports and imports via digital platforms and directives issued by the Ministry of Shipping to ensure regular supply of goods in the country.
Certain rules and regulations have been modified; certain more needs modification, to ensure everlasting growth of India’s international trade. The policies keep on changing with the changing situation internally as well as externally. The trade deficit should be curbed. Unnecessary imports to be avoided and Indian Youth Power should be used as an asset and to promote technology and efficiency across various sectors of the country and consequently earn foreign exchange by exports.
To conclude the trend of trade policy of India since the period when India was not under British Colonialism and up till date is discussed. The trade policy witnessed various significant changes in the various periods. India shifted from exporter of precious goods to exporter of mere raw material and then to import substitution policy. The new economic policy again changed the terms of trade and India became slowly and gradually became a major player in international trade. Then the impact of pandemic coronavirus was analyzed and measures to curb or decrease its adverse impact on international trade were considered and recommendations were given.
· Annual Report 2019-20, Government of India Ministry of Commerce and Industry Department of Commerce.
· International Business 4E, Aswathappa
· Agneshwar Sen, Associate Partner, Tax and Economic Policy (International Trade), EY India
[i] International Business 4E, Aswathappa
[ii] Agneshwar Sen, Associate Partner, Tax and Economic Policy (International Trade), EY India
[iii] Annual Report 2019-20, Department of Commerce
[iv] DGFT Public Notice No. 57/2015-2020 dated 31.03.2020 and DGFT Public Notice No. 67/2015-2020 dated 31.03.2020.