Social Scientist. v 13, no. 143 (April 1985) p. 11.

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Trade Liberalisation in India Attempts and Consequences

THE government's recent Import-Export (Exim) policy statement has, for the first time, enunciated a policy for a three-year period. We may therefore assume that it is definitive, and marks the culmination of the strategy of trade liberalisation which has been pursued over the past decade. Therefore, we intend to comment upon the strategy as a whole, rather than the individual measures announced in this statement, which are in any case mainly extensions and modifications of earlier measures. In Section I, we briefly review the course of liberalisation. Then, since orthodox trade theory, with its formal elegance and apparently clear-cut policy implications, exerts a peculiar influence on any discussion of trade strategy, we expose its limitations in Section II, and also look for evidence linking liberalisation to growth. Finally, Section III examines, at an abstract and fairly conjectural level, the results of liberalisation in an economy such as ours.

It is often alleged that trade liberalisation and the associated 'export-led growth' strategy were forced on India by the IMF as part of the package of'conditionalities' associated with the controversial loan negotiated during 1981. A review of the annual Exim policy statements, however, shows that liberalisation measures were initiated in the mid-1970s, accelerated in 1978, were if anything reversed slighdy in 1981, and proceeded briskly even after the government, with much fanfare, 'declined' the final (1984-85) instalments of the loan,

The working of the trade policy at the height of the restrictive phase has been well documented by Bhagwati and Desai.1 Grant of an import licence required an official agency to sponsor the 'essentiality' of the proposed import, and also to certify its 'indigenous non-availability'. Procedures were cumbersome and criteria to allocate licences virtually non-existent. A major departure was made in 1975 with the introduction of 'automatic' licences, circumventing these procedures and issued on the basis of past consumption of imported inputs. Further modifications (applicable to specific industries) were the introduction ot supplementary licences, enlarging an importer's automatic quota, and later 'free' and 'repeat' licences, where no verifica^ tion of use was required. The Open General Licence (OGL) category of goods, for which no import licence is required at all, has been expanded by several hundred items—mainly capital goods—since 1976. Numberous items whose import was routed through state agencies have been 'decanalised'. The Registered Exporters (REP) scheme, which provides for replenishment of imported inputs used in production for

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