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Overview of before 1991

India¶s exports and imports before 1991
Restrictions on foreign trade
Conditions of Indian Economy in 1991
Important reform measures
Changes in exports
Changes in imports
Changes in trade deficits
Foreign collaboration policies
V

   
Indian Joint Ventures Abroad
Impact of New Policy and Future Direction


 



 
  
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§he country was under socialist-based
policies for an entire generation from the
1950s until the 1980s. §he economy
suffered from extensive regulation,
protectionism, and public ownership,
leading to pervasive corruption and slow
growth. Elaborate licenses, regulations
and the accompanying red tape,
commonly referred to as License Raj,
were required to set up business in India
between 1947 and 1990.
India¶s exports & imports before 1991
 
   
   


  
›
  
1970-71 1535 8.6 1634 3.3 -99
1980-81 6711 4.6 12549 37.3 -5838
1981-82 7806 16.3 13608 8.4 -5802
1982-83 8803 12.8 14293 5.0 -5490
1983-84 9771 11.0 15831 10.8 -6060
1984-85 11744 20.2 17134 8.2 -5390
1985-86 10895 -7.2 19658 14.7 -8763
1986-87 12452 14.3 20096 2.2 -7644
1987-88 15674 25.9 22244 10.7 -6570
1988-89 20232 29.1 28235 26.9 -8003
1989-90 27658 36.7 35328 25.1 -7670
1990-91 32553 17.7 43198 22.3 -10645
Restrictions on foreign trade:-
å India was largely and intentionally isolated from the
world markets, to protect its fledging economy and to
achieve self-reliance.
å Foreign trade was subject to:-
import tariff
export taxes
quantitative restrictions
foreign direct investment was restricted by upper-limit
equity participation
restrictions on technology transfer
export obligations
government approvals (these approvals were needed for
nearly 60% of new FDI in the industrial sector).
Conditions of Indian economy in 1991

Foreign currency reserves plummeted to

almost $1billion
Inflation was at a rate of 17%
High fiscal deficits
Foreign investors and NRI¶s had lost
confidence in Indian Economy
Capital was flying out of economy
Defaulting of loans
? 
„
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÷ajor measures initiated were as follows:

Devaluation
Disinvestment
Dismantling of the industrial licensing
regime
Allowing foreign direct investment
Privatization
Abolition of the ÷R§P Act
Removal of import restrictions
Reduction of the peak customs tariff
New financial sector reforms
w


å As a proportion of GDP, the share of exports,
which had grown from 5.8 per cent in 1990-
91 to 12.2 per cent in 2004-05, grew further
to 13.1 per cent in 2005-06.
å However, from 1980 onwards, Indian exports
have been rising at one and a half times the
pace of growth in world exports. In 1993,
India ranked 33rd in top exporting countries
and 32nd in top importing countries.
å §he government has slashed down its export
growth target to 3 per cent for the current
fiscal
  ? ?

å §he corresponding rise in imports was
from 8.8 per cent in 1990-91 to 17.1 per
cent in 2004-05 and further to 19.5 per
cent in 2005-06.
å Out of 21 major items, nearly 50 per cent
have a relative unit value of one or more,
that is the i
i  
 i
i i
i  

å ÷any items have shown an increase in the
relative unit value payments from pre
reform to post reform period.
CHANGES IN §RADE DEFICI§
å §hus,  i
ii  , which had declined from
3.0 per cent in 1990-91 to 2.1 per cent in 2002-03, widened to 4.9
per cent in 2004-05 and further to 6.4 per cent in 2005-06.
å Previously a closed economy, India's trade has grown fast. India

 


   
 as of 2007 according to
the W§O.
å According to the World §rade Statistics of the W§O in 2006, India's


 i (counting exports and imports)  

i

i in 2006 and India's services trade inclusive of export

and import was $143 billion.
å §hus, India's global economic engagement in 2006 covering both
merchandise and services trade was of the order of $437 billion, up
by 
 
  
 
 !i

i i ""
å India's trade has reached a still relatively moderate share 24% of
GDP in 2006, up from 6% in 1985.
V
 

   
India's effort to accelerate industrialisation &
improve international competitiveness
received a boost with the announcement
of the New Industrial Policy in July 1991. „
#
  $ i

i
% 
i 
    
&i 

i& i  %
 
&i

i'.
§he Policy changes were designed to
attract significant & sustained capital
inflows into India, while encouraging
technological collaboration between Indian
& foreign companies.
V
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å ÷ajority foreign equity, even upto 100%, is allowed in several sectors .
å Foreign investment upto 51% in 35 high priority areas is eligible for
automatic approval, provided by Reserve Bank of India, within 2 weeks of
application.
å Use of foreign brand names & trademarks for sale of goods in India is
allowed.
å Foreign companies are allowed to open branch offices in India.
å Hotels & tourism related industries are also eligible for automatic approval
for direct foreign investment with upto 51% equity.
å Foreign Institutional Investors á  have been allowed to invest in the
Indian capital market. Foreign investment has been allowed in off-shore
funds promoted by Indian Financial Institutions.
å Indian companies have been allowed to float Global Depository receipts
á which are traded in major international stock exchanges.
å §here is now a market determined exchange rate for the rupee. Foreign
exchange is freely available for a number of purposes like payment of
royalties, lump sum fees, dividends, business travel abroad etc.
å Other proposals for foreign equity investment shall also be considered on
case-to case basis for clearance by Secretariat for Industrial Approvals.
 ?  



Indian joint ventures (Jvs) & wholly owned
subsidiaries are an important instrument for
promoting exports, trade expansion &
economic cooperation.
India's foreign investment is the highest
amongst 3rd world countries & is dispersed
over 70 countries.
As on 31st December 1994, there were 524
joint ventures, of which 177 were in
operation & 347 at different stages of
implementation.
§he Indian equity in the 177 Jvs was Rs.
1,817 million in Dec 1994 & the approved
Indian equity in the 347 Jvs was Rs 13,952
million.
?      V



  
å Dramatic change in the foreign currency
reserves of the Government of India -
taking it to US$ 20.8 billion at end-÷arch
1995.
å 7,200 foreign collaboration proposals were
approved in the post-policy period from
August 1991 to September 1995.
p

  



 





å Rupee has been made convertible on the current
account
å Exporters & units in Export Processing Zones, Software
§echnology Parks, are now allowed to retain a higher
percentage of their forex earnings
å National Centre for §rade Information has been
launched to facilitate greater access to trade information
å §he World §rade Organization (W§O) agreement has
been signed
å Pass Book Scheme has been introduced for all Export
Houses/§rading Houses/Star §rading Houses/Super Star
§rading Houses.
å A harmonized system of commodity classification known
as Indian §rade Classification has been introduced.
CONCLUSION
India currently accounts for 1.2% of World trade as of
2006 according to the W§O.
International trade as a proportion of GDP reached 24%
by 2006, up from 6% in 1985 and i


i 
.
India was evaluated by the World §rade Organization in
2008 as i
i  ii
 
i &

 i, such as Brazil, China, and Russia.
§he W§O also identified 

i
i& and
i ( i infrastructure as significant
constraints on trade.
India still has a long way to go - it's share in world
exports was a mere 0.65% in 1994-95. India imported
Rs.887 billion of goods in 1994-95, and exported Rs.823
billion.
INDIA¶S GDP GROW§H RA§E
§