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International Trade and Finance

Notes (ii) Foreign Direct investment destination by the World Investment Report 2012. Prepared by
United National comperence on Trade and Development?
(a)UK (b) Brazil
(c) China (d) USA
(iii) Which among the following may not be a consequqnce of inflation?
(a) Higher speculative Investment (b) Equal distribution of Income
(c) Fall in Read Income of Salaried People (d) Higher production
(iv) In the Industrial Policy of 1991 how many industries were reserved only for public sector?
(a)7 (b)8
(c)11 (d)13
31.4 Summary

• India, however, did not have a clear trade policy before Independence, though some type of
import restriction—known as discriminating protection—was adopted since 1923 to protect a
few domestic industries against foreign competition. It was only after Independence that a
trade policy as part of the general economic policy of development was formulated by India.
• On the import side, India has been in a disadvantageous position vis-a-vis advanced countries
which are capable of producing and selling almost every commodity at low prices. This meant
that India could not develop any industry without protecting it from foreign competition. Import
restriction—commonly known as protection—was thus essential to protect domestic industries
and to promote industrial development. Since Independence, the Government of India has
broadly restricted foreign competition through a judicious use of import licensing, import quotas,
import duties and, in extreme cases, even banning import of specific goods. The Mahalanobis
strategy of economic development through heavy industries, which India adopted since the
Second Plan, called for (a) banning or keeping to the minimum the import of non-essential
consumer goods, (b) comprehensive control of various items of imports, (c) liberal import of
machinery, equipment and other developmental goods to support heavy-industries based
economic growth, and (d) favourable climate for the policy of import substitution.
• 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.
• 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.
• 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.

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