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Unit 31 : India’s Trade Policy : Recent Developments

through setting up trading institutions, and through fiscal and other incentives. Vigorous export Notes
promotion was emphasised after the Second Plan to earn foreign exchange to overcome the acute
foreign exchange crisis. In the 1970’s, importance of export promotion was again emphasised because
of mounting debt service obligations and the goal of self-reliance (with zero net aid).
Phases of India’s trade policy

Five distinct phases in India’s trade policy can be noted : the first phase pertains to the period
1947-48 to 1951-52, the second phase covering the period 1952-53 to 1956-57 and the third phase after
1956-57 to June, 1966; the fourth phase started after devaluation of the Rupee in june 1966 and the last
phase after 1975-76.
During the first phase up to 1951-52, India could have liberalised imports but on account of the
restrictions placed by the U.K. on the utilisation of the sterling balances, she had to continue wartime
controls. Since our balance of payments with the dollar area was heavily adverse, an effort was made
to screen imports from hard currency areas and boost up exports to this area so as to bridge the gap.
This also necessitated India to devalue her currency in 1949. By and large, the Import policy continued
to be restrictive during this period. Besides this, restrictions were also placed on exports in view of
the domestic shortages.
During the second phase (1952-53 to 1956-57) liberalisation of foreign trade was adopted as the goal
of trade policy. Import licences were granted in a liberal manner. An effort was also made to encourage
exports by relaxing export controls, reducing export duties, abolishing export-quotas and providing
incentives to exports. Liberalisation led to a tremendous increase in our imports but exports did not
rise appreciably. Consequently, there was fast deterioration in our foreign exchange reserves. This
necessitated a reversal of trade policy.
During the third phase which began in 1956-57, the trade policy was re-oriented to meet the
requirements of planned economic development. A very restrictive import policy was adopted and
the import controls further screened the list of imported goods. On the other hand, a vigorous export
promotion drive was launched. The trade policy assumed that a lasting solution to the balance of
payments problem lies in the promotion and diversification of our export trade. Not only should the
export of traditional items be expanded, but export of newer items should also be encouraged.
Similarly, import substitution industries should also be encouraged so that dependence on foreign
countries be lessened. It was in this period that India’s trade policy was thoroughly reviewed by the
Mudaliar Committee (1962).
The fourth phase started after the devaluation of the rupee in June, 1966. During this period trade
policy attempted to expand exports and strangely liberalised imports too. Actually, export promotion
was given a big post through the acceptance and implementation of the commendations of the Mudaliar
Committee (1962). The major recommendations included increased allocation of raw materials to
export-oriented industries, income tax belief on export earnings, export promotion through import
entitlement, removal of disincentives, and setting up of export Promotion Advisory Council, a
Ministry of international Trade, etc. When these export promotion measures did not succeed and
adverse balance of payments persisted, the Government of India undertook devaluation of the rupee
in 1966 as a major step to check imports and boost exports. Initially devaluation was not successful
and the adverse balance of payments worsened during the Annual Plans. But during the Fourth
Plan, the trade policy was quite successful in restricting imports and promoting exports. This period
continued till 1975-76.
During the last phase (1975-76 onwards), the Government adopted a policy of import liberalisation,
with a view to encourage export promotion. During Janata rule (1977-79) import liberalisation was
also adopted to augment domestic supply of essential goods and to check rise in price level. Import-
export policy of the Indian Government attempted to achieve such objectives as : (i) to provide further
impetus to exports; (ii) to provide support to the growth of indigenous industry; (iii) to provide for
optimum utilisation of the country’s resource endowments, especially in man-power and agriculture;
(iv) to facilitate technology up-gradation with special emphasis on export promotion and energy
conservation; (v) to provide a stimulus to those engaged in exports and in particular, to manufacturing
units contributing substantially to the export efforts; and (vi) to effect all possible savings in imports.

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