Page 382 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes During the first two years of the Tenth Plan, in 2002-03 again our current account balance was positive
to the extent of ` 30,660 covers and during 2003-04, it was of the order of ` 63,983 crores. But this was
the consequent of a heavy surplus on invisibles account which not only wiped out the trade deficit,
but yieled a net positive balance an current account. India has the unique distiction that though
during the 3-year period 2001-02 to 2003-04, our trade balance showed a massive deficit, a big inflow
of net invisibles, resulted in a positive balance on current account
However, during 2004-05, there was a huge trade deficit of the order of ` 1,51,765 crores on account
of an unprecedented increase in our imports, although our exports also showed a big jump. There is
no doubt that our invisibles showed a record positive balance of ` 1,39,591 crores in 2004-05, but this
could wipe out the trade deficit only to the extent of 92 percent, Consequently, a current count deficit
of ` 12,174 crores was witnessed in 2004-05. This is an unhealthy development, but since the same
reckless policy of import liberalisation is being pursued later also, the situation worsened further
and current account deficit increased to the extent of ` 43,737 crores in 2004-05 and ` 1,31,614 crores
in 2008-09. However, taking the Tenth Plan period (2002-03 to 2006-07) as whole, the total current
account deficit was of the order of ` 5,651 crores. The trade deficit in the Tenth Plan was wiped out by
the surplus from invisibles to the extent of 99.3%.
However situation worsened in 2007-08, 2008-09 and 2009-10 as we find net invisibles fell short of
trade deficit, resulting in heavy deficit of balance of payment to the tune of ` 6,34,79 crores 2007-08,
` 1,27,631 crores in 2008-09 ` 1,80,626 crore in 2009-10 and ` 202532 in 2010-11.
32.2 Balance of Payment Crisis

Basic aim of the 1985 Export—Import Policy was
(a) to facilitate production through easier and quicker access to imported inputs;
(b) to strengthen export production base; and
(c) to facilitate technological upgradation.
Although the Government has been maintaining that the policy is neither liberal nor restrictive, but
the fact of the matter is that the policy led to a wave of indiscriminate liberalisation of imports.
On the other hand import of quite a large number of capital goods were brought under OGL. These
208 items included micro-processor based equipment, machine tools, spinning machines, jute
machinery. In this wave of liberalisation, even in areas where indigenous machinery was produced
by BHEL, imports were allowed. While the MMTC and Department of Electronics were not in favour
of this indiscriminate liberalisation of imports, the powerful local and multi-national lobbies were
able to persuade the government to permit liberalisation even in areas where an independent self-
reliant indigenous sector was emerging. All this was done in the name of hi-tech and upgration of
technology. But as the then Prime Minister Mr. Rajiv Gandhi himself conceded in one of his interviews,
this triggered off what may be described as ‘’screw driver industrialisation.”
Obviously, import liberalisation measures resulted in the emergence of the huge deficit in the balance
of trade. The finance ministry, therefore, started working out proposals to curtail imports of machinery
and equipment. Similarly, the introduction of MODVAT was also aimed at weaning away Indian
industry from dependence on imported components to increased use of indigenous products. In
other words, the policy was imperceptibly reversed toward self-reliance and the Government tacitly
accepted its mistake in opening the import-window rather too wide.
In the name of technological upgradation, there was, therefore, an unfettered drive for import of
capital goods, designs and drawings. All studies on technology transfer by multi-nationals indicate
that in the name of technological upgradation, the multinationals carry on ‘technological dumping’
of such technologies which have been superseded in developed countries. Consequently, second-
hand machinery is dumped in the name of import of capital goods. It is really this area which led to
the growth of foreign dominance in collusion with Indian big business playing the role of the
underpinning of the world economy.
The upshot of the entire analysis is that the crisis in the balance of trade and consequently its adverse
impact on the balance of payments was the result of the policy of indiscriminate import liberalisation

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