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Unit 31 : India’s Trade Policy : Recent Developments

10. In the light of the substantial liberalisation of the trade regime, and also the recent changes in Notes
exchange rates (after devaluation), Cash Compensatory Scheme (CCS) was abolished from
July 3, 1991.
Assessment of the Trade Policy

Trade Policy (1991) aimed to cut down administrative controls and barriers which acted as obstacles
to the free flow of exports and imports. The basic instrument developed by the Policy was the Exim
scrip in place of Rep licences. The purpose of this instrument was to permit imports to the extent of
30% on 100 per cent realisation of export proceeds. Obviously, the purpose was to bridge the BOP
gap. Trade policy has streamlined various procedures for the grant of advance licences as also permit
imports through exim scrips routes.
Since the time of Mudaliar Committee in 1962, the country has been fed on the slogan of export-
promotion through import entitlement. Various instruments have been forged there after, but a long
term view only underlined the fact that the country failed to check the faster growth of imports than
that of exports during the last three decades. Under one pretext or another, the import widow was
opened much wider and this continued. There was a strong need to exercise extreme caution in
liberalising imports, more so inessential imports.
To conclude, India’s trade policy since Independence has been used as part of general economic
policy to develop the country and to diversify the economy. Initially it took the form of restricting
imports and boosting exports. It also took the form of organising international trade and bilateral
and multi-lateral trade agreements. In the later years, trade policy took the form of export promotion
through import liberalisation. Formulated by bureaucrats under the influence and guidance of Indian
business houses and multinational giants, India’s trade policy did have an important influence on
the rapid development of the country, but it was basically responsible for leading the country into
the classical debt trap.
Let us now analyse the two aspects of India’s trade policy—import policy and export policy.
31.2 Export-Import Policy

The import policy in the post-independence period was guided by considerations of a growth-oriented
policy which should ultimately lead us to the objective of self-reliance.
Export-Import Policy during First Decade of Planning
The needs of massive programme of industrialisation contemplated in the Second Plan led to the
adoption of a liberal import policy in mid-50’s. Imports went up sharply both in the private and
public sectors. The schemes of modernisation, replacement and expansion undertaken in the private
sector and the programmes of the building up of heavy and basic industries in the public sector led to
an unprecedented rise in imports. Exports did not expand as planned. Accordingly, India lost all its
accumulated sterling balances to pay off its adverse balance. The country also suffered from a serious
shortage of foreign exchange—a veritable foreign exchange crisis. This necessitated a reversal of
import policy and drastic restrictions were placed on imports.
During the Second Plan period, it was felt that export earnings could not be significantly increased unless
industrialisation gathered momentum. This fact was given expression in Second Plan in the following
words : “India’s export earnings are derived from a few commodities. Three of them, namely, tea, jute and
cotton textiles, account for nearly one-half of the quota. These major exports are meeting increasing
competition from abroad. This limits the scope for any substantial increase in exports in the short run.
While every effort has to be made to promote exports of new items and to develop and diversify the
markets for country’ s major exports, it has to be recognised that it is only after industrialisation has
proceeded some way that increased production at home will be reflected in large export earning.
Mudaliar Committee Recommendations
The Government appointed the Import and Export policy Committee headed by Mr. Mudaliar in
1962 to review Government’s trade policy. The Committee felt that developmental and maintenance

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