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International Trade and Finance

Notes Thus, it is clear that the purpose of trade policy has been to stimulate economic growth and export
promotion via import liberalisation.
While framing the export-import policy (1985), the Government was guided by the recommendations
of Abid Hussain Committee. Whereas the Committee emphasized the need for striking a balance
between export promotion and import substitution, the Government in its wave of import liberalisation
permitted a much greater quantum of imports in the name of export promotion and capital goods
imports for technological upgradation. Thus, grave distortions appeared in the process of
implementation of the recommendations of the Committee.
The first major attempt at liberalisation was made by the Rajiv Gandhi Government. As a result, in
the four years from 1985-86 to 1989-90, exports surged forward and the period witnessed a record
average annual growth of 17 per cent in dollar terms. Unfortunately exports declined by 9 per cent in
1990-91.
31.1 India’s Foreign Trade Policy

Giving the rationale for the new policy, the Commerce Minister noted : For several decades, trade
policy in India has been formulated in a system of administrative controls and licenses. As a result,
we have a bewildering number and variety of lists, appendices and licences. This system has led to
delays, waste, inefficiency and corruption. Human intervention—described as discretion—at every
stage, has stifled enterprise and spawned arbitrariness.
The Government, therefore, decided that while all essential imports like POL, fertilizer and edible oil
should be protected, all other imports should be linked to exports by enlarging and liberalizing the
replenishment licence system. For this purpose, the following major reforms were announced:

The then Commerce Minister, Mr. P. Chidambaram, announced a major overhaul of
trade policy on July 4, 1991.

Major Trade Reforms
1. Rep will become the principal instrument for export-related imports.
2. All exports will now have a uniform Rep rate of 30 per cent of the f.o.b. value. This was a
substantial increase from the present Rep rates which vary between five per cent and 20 per
cent of f.o.b. value.
3. The new Rep scheme gave maximum incentive to exporters whose import intensity was low.
For example, agricultural exports which earlier had very low replenishment rates of five per
cent or 10 per cent will now gain considerably.
4. All supplementary licences shall stand abolished except in the case of the small scale sector and
for producers of life-saving drugs/equipment.
5. All additional licences granted to export houses shall stand abolished.
6. All items now listed in the Limited Permissible List OGL items would hereafter be imported
through the Rep route.
7. The Exim policy contained a category known as Unlisted OGL. This category stands abolished
and all items falling under this category may be imported only through the Rep scheme.
8. Advance licensing had been an alternative to the Rep route for obtaining imports for exporters.
It was expected that many exporters would find the Rep route more attractive now. However,
for exporters who wish to go through advance licensing, this route would remain open.
9. The goal of the government was to decanalise all items except those that are essential.

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