Libmonster ID: IN-1282
Author(s) of the publication: A. S. BUGROV


Post-graduate student of the Institute of Oriental Studies of the Russian Academy of Sciences

India-one of the 3 largest economies in Asia along with Japan and China - follows the policy of state support for national producers and the active presence of the state in on-farm activities. The results of the medium-term program "India's Foreign Economic Policy in 2004-2009", despite the global financial and economic crisis, can be considered successful, since the goals announced at the time of its adoption were achieved back in 2008.

By the beginning of the crisis, India had increased its presence on the world market, and exports of machine-building products and services were actively increasing. The crisis has reinforced the trend of reducing the share of economically developed countries in the country's foreign trade.

The successful results are the result of a consistent state policy to build an independent economic system for more than half a century. There is continuity in foreign trade policy, with only short-term instruments changing.


The entire history of India's foreign economic policy can be divided into two periods: the pre - reform period (1947-1991) and the modern period (since 1991). Both periods have been consistent with certain general economic development strategies. In turn, the structure of the economy, the export potential of its branches and its needs determined the geography of economic ties.

Until 1991. India followed a policy of import substitution.

The import-substituting model of development was formed in line with the tradition of Swadeshi, which was formed in Indian society back in the colonial period - focusing on local goods as a way to protect national production. In terms of tariff protection (up to 200%), India was one of the first countries in the world, and the share of foreign trade, including exports, was only 6-7% in the 1970s1.

In the first years of independence, up to the early 1960s (during the first 2 five-year development plans 1951-1962), the Government of India's activities to promote export trade included generally accepted methods in world trade (customs policy, tax and financial preferences). True, since the late 1950s, specific Indian methods began to be introduced: the creation of a network of export promotion councils and specialized foreign trade organizations, but at that time "the export program was not considered as an integral part of the country's development plans"2. Also, most companies did not have access to foreign trade activities. "One who has long been engaged in foreign trade operations and, consequently, has long been in a privileged position, or one who enjoys the patronage of the authorities, can act in it (in foreign trade).3

Initially, the state imposed export restrictions on some of the exported goods (food and raw materials for industry, etc.), but by the early 1960s, more than 90% of goods were exported freely. Exporters were compensated for the export duty, which was paid when importing raw materials and semi-finished products for the production of exported goods. By the end of the 1950s, the state began to increase its participation in export lending, and the state system of insurance for exporters came into effect.


After gaining independence in 1947, India faced an acute task of building an economic system that would ensure economic independence.

It was about creating entire sectors of the economy. The scale of the tasks, including ensuring a sufficiently high rate of economic development, was such that they could not be achieved (as was previously the case in the now economically developed countries, mainly in the Anglo-Saxon ones) only on the basis of the incentive motives of private entrepreneurship and the associated spontaneous market regulation of economic processes.

This was due to the narrowly limited goals and capabilities of private capital at the time. Private capital was not able to act as a leading force in the economic development of the Indian state due to a number of features. These include the insufficient amount of funds that businesses need to finance large projects, as well as the lack of experience in pooling financial resources.

In addition, private capital was not ready for active activity in the field of industrial entrepreneurship, did not have the necessary minimum technical knowledge, experience in organizing and managing large-scale production. Finally, due to the prevailing socio-economic structure, private capital was mainly of a commercial nature, preferring to invest in trade, in the purchase of real estate, in service enterprises, i.e. in sectors that allow for small investments, where their rapid turnover occurs.

Thus, government involvement in the emerging Indian economy was an urgent necessity. But at the time of independence in India, there were still large

page 54

industrial sectors with private capital participation - cotton, sugar, cement, coal.

Taking into account the local specifics, the Government has declared a policy of creating a "mixed" economy, which implies the active development of both the public and private sectors. The country's leadership also did not set the goal of nationalizing foreign trade.

Table 1

Commodity structure of Indian imports in 1950-1951 fin.


Million Rupees


Food raw materials and foodstuffs



Agricultural non-food raw materials and products made from them



Solid fuels, oil and petroleum products



Chemicals and building materials



Metals and metal products



Machinery and equipment






Source: Stasov M. N. India i sotsialisticheskie strany: sostoyanie i perspektivy ekonomicheskogo sotrudnichestva [India and Socialist Countries: state and Prospects of Economic Cooperation]. 1980, p. 35.

In India, there were no competitive companies in such key sectors of the economy as ferrous metallurgy, basic chemicals, mechanical engineering and machine tool construction. And these industries required significant capital investment, technologies that private Indian capital did not have at that time. In the manufacturing industry, equipment was largely physically and morally obsolete by 1947. Machines and mechanisms were operated without taking into account their wear and tear. This reduced labor productivity, increased production costs, and worsened the competitiveness of products, not to mention mass injuries among workers.

In the cotton industry, more than 65% of the spindle fleet and 80% of the machine fleet needed to be replaced immediately, while in the jute industry, 90% of the machine fleet needed to be replaced immediately.4 Having an abundant labor force, the country was forced to import not only manufacturing products, but also some raw materials. According to the data of the Planning Commission of India, in 1950-1951 the share of imports in total consumption of oil was 70%, mineral fertilizers-89.9%, ferrous metals-25.2%. The sugar industry was provided with equipment only from abroad, and in the textile industry, more than 60% of all equipment was imported.5

Due to the large population and natural growth, the unresolved land problem and the technological backwardness of agriculture, India experienced a need to import food until the "green revolution" in the 1970s.

Thus, both in agriculture and in industry, India was dependent on the world economy. This led to a certain structure of imports of goods, which included goods from almost all sectors of the economy: from agricultural and industrial raw materials to food and machinery and equipment.

During the first two five-year plans, exports were dominated by colonial-type goods - agricultural raw materials and products of its processing, as well as mineral raw materials (primarily for ferrous metallurgy).

Since the beginning of the 3rd five-year development plan (1961 - 1962 - 1965 - 1966 government agencies have become actively involved in foreign economic activity.

This was reflected in the control of import and export of goods. Due to the balance of payments deficit observed throughout the entire period of independence, public authorities were always required to conduct a balanced policy on spending the funds received. In particular, restrictions were imposed on the use of foreign currency for the import of luxury goods (they were lifted only in 2006) and a number of consumer goods that were considered secondary. Licenses were also issued for the import of equipment, raw materials, semi-finished products, components and spare parts to create additional capacities for export. Subsequently, as the range of goods produced in India increased, protectionist measures were introduced to restrict, and often prohibit, the import of a number of manufactured goods.

Before India in the late 80's-early 90's of the XX century. The following tasks were set due to the domestic economic situation: diversification of sources of oil and gas imports (for the growing electric power and chemical industries); modernization of industry and ensuring sales of products; ensuring sales of traditional goods (tea, leather products, etc.).

Table 2

Commodity structure of India's exports in 1950-1951 fin.


Million Rupees


Agricultural products



Agricultural non-food raw materials and products made from them



Fuel, mineral raw materials, metals



Chemicals, fertilizers, rubber, building materials, etc.



Machinery and equipment






Source: Stasov M. N. India i sotsialisticheskie strany: sostoyanie i perspektivy ekonomicheskogo sotrudnichestva [India and Socialist Countries: state and Prospects of Economic Cooperation]. 1980, p. 35.

page 55


The export-oriented development model, the transition to which began as a result of reforms carried out in the 1990s, provides for an increase in exports of goods and services.

Estimates and planning of exports and imports of goods and services within the export-oriented model of economic development differ from the import-substituting one. "If before (before 1991 - A. B.) the export growth rate was defined in the five-year plans as the difference between import growth and the planned current account deficit, now it is set based on the planned structure of economic growth and the export surplus by industry. On the contrary, in the context of import liberalization, uncertainty in forecasting the commodity structure of imports increases, and therefore the planned import growth rate is determined not by the commodity structure, but as a whole " 6.

Table 3

Commodity structure of India's exports in 2007-2008 fin.


$ million


Agricultural raw materials



Agricultural products






Mineral raw materials



Leather and leather goods



Precious stones and jewelry



Sporting goods






Machinery and equipment






Material and technical support of projects



Textile products



Artisanal items






Raw cotton



Petroleum products









Source: Compiled according to the Department of Commerce of the Ministry of Trade and Industry of India 7 (based on the average exchange rate for 2007-2009, $1 = 45 rupees).

The growing Indian economy requires more and more oil and petroleum products. Their share in the value of imports increased to 30% in the years of the 10th five-year plan. In this regard, the last 11-year five - year plan (2007-2011) defines energy security (guaranteeing energy supplies, developing the electric power industry in India, and participating in the exploration and development of oil and natural gas fields in other countries) as key in terms of ensuring the country's economic development.

In the post-reform period, India's exports and imports underwent significant changes. By opening up its market to foreign investment, but at the same time maintaining its presence in the economy, including in key sectors of heavy industry, mining, electric power and even the financial sector, India has achieved stable growth in industrial output, which has become one of the most important export items.

In the 1990s and the first years of the 20th century, the goods of the manufacturing industry took the first place in the commodity structure of exports, with textile products (11.3% of total exports in 2007-2008) being inferior to machinery and equipment (20.7%) and petroleum products (17.4%). Processed precious stones and jewelry, being traditional items of Indian export, are inferior to the products of the chemical industry (12.1% and 13.7%, respectively). Leather and products made from it (2.2%) and handicrafts (0.3%), the production of which is under state protection, are not fundamentally important in the total export value, and their share is only decreasing.

In the commodity structure of imports, the most important item is occupied by bulk / liquid cargo (44.6% of all imports), which in turn mainly includes oil (from 26 to 30% of all imports, according to the 11th five-year plan), and machinery and equipment (18%) are also a significant item of expenditure.


In August 2004, the Government of India announced the entry into force of the "Foreign Trade Policy for 2004 - 2009" (FTP) program, the fundamental goal of which is to stimulate economic activities aimed at growing the national economy and developing the country's export potential.

The new foreign trade policy, combined with a number of initiatives, reinforces and builds on previous decisions aimed at developing exports and improving the competitiveness of Indian goods by creating favorable conditions for exporters that would not contradict the rules of the World Trade Organization (WTO) and would not discriminate against local producers focused on the domestic market.

The foreign trade policy is a continuation of the initiatives and proposals formulated in the previously implemented export-import policy, which are structurally grouped into 6 main directions: increasing the volume and expanding the geography of exports; export growth in such sectors of the economy as agriculture, handicraft and handicraft production, small and medium-sized businesses, leather, textile and jewelry industries development of export of high-tech products; reduction of transaction costs and simplification of regulation of export-import transactions; development of export promotion programs; development of Free Economic Zones (FEZs).

page 56

Figure 1. Share of some goods in India's exports.

Source: Compiled from the Department of Commerce, Ministry of Commerce and Industry of India 8.

Table 4

Commodity structure of Indian imports in 2007/08 fin.


$ million


Bulk / bulk cargo



Pearls, semi-precious and precious stones



Machinery and equipment



Material and technical support of projects









Source: Compiled from the Department of Commerce, Ministry of Commerce and Industry of India 9.

The foreign trade policy is aimed at continuing the course of liberalization and openness of the Indian economy, ensuring its transparency, and removing quantitative and qualitative restrictions. At the same time, foreign trade policy should contribute to the development of the competitiveness of the Indian economy, its focus on the foreign market and its integration into the world economy.

Two main objectives were envisaged: a 2-fold increase in India's share in world trade in goods over the next 5 years, which will increase the country's share in world exports from 0.82% in 2005 to 2% by 20101; turning foreign trade into an effective tool for economic growth of the country and increasing the level of employment of the population.

The implementation of these goals was supposed to be achieved as a result of solving the following large-scale problems::

- release from excessive control, create an atmosphere of trust and openness for the accelerated development of entrepreneurship in the country; simplify bureaucratic procedures and reduce transaction costs;

- reduction of non-production costs in the structure of the value of export goods, including by eliminating the corresponding fees and taxes, based on the fact that the latter cannot be exported;

- Turning India into a global center of industry, trade and services;

- identifying and defining areas of activity that create additional opportunities for employment growth, especially in rural areas; creating conditions for technological and infrastructural improvement of the Indian economy, including through the import of means of production, increasing value added, increasing labor productivity and achieving international quality standards;

- in free trade agreements, regional trade agreements and agreements on trade preferences that India enters into to increase its exports, avoid commitments that are unfavorable for the Indian side, and seek the adoption of conditions that promote the development of the Indian economy's sectors;

- expanding and modernizing the trade infrastructure in accordance with world trade practices and international standards; restoring the activities of the Trade Council, changing its role, achieving proper recognition, and introducing experts on foreign trade policy to its membership;

- enhancing the activities of Indian embassies as key participants in the Indian export strategy and integrating Indian trade units abroad into a single electronic system for real-time exchange of trade information.

The new foreign economic policy provides for a set of special legislative measures aimed at strengthening the potential of 4 major export industries: agriculture, gem processing and jewelry production, handicrafts, leather goods and footwear production.

In agriculture, a new preferential lending scheme has been introduced to encourage the export of fruits, vegetables, flowers, and rare wood species; import of means of production for export agro-industrial zones is allowed under simplified EPCG (Export Promotion Capital Goods) conditions; import of seeds, bulbs, tubers, and other planting materials, as well as the export of medicinal plants, herbal herbs, etc. is simplified. extracts.

In the sphere of precious stones processing and jewelry production, duty-free import of metals consumed for production purposes (except for gold and platinum), as well as other auxiliary materials in the amount not exceeding 2% of the export value is allowed

page 57

goods produced on an FOB basis (excluding loading on a ship and transportation of goods to their destination); duty-free re-import of rejected jewelry components for an amount not exceeding 2% of the export volume of finished products on an FOB basis is allowed; duty-free import of commercial jewelry samples in the amount of up to 100 thousand Indian rupees is allowed; the procedure for importing gold is simplified weighing 18 carats or more.

In the sphere of handicrafts production, the volume of duty-free import of jewelry and finishing accessories has been increased to 5% of the value of export deliveries of finished products on FOB terms; the import of jewelry and finishing accessories has been exempted from excise duties and additional countervailing duties.

In the production of footwear and leather goods: duty-free import of finishing accessories and other shoe components was increased to 3% of the value of export deliveries on FOB terms; duty-free import of a specially agreed list of commodity items for the leather industry was allowed; the duty on import of equipment for cleaning liquid technological effluents was abolished.

Export promotion measures include action plans for priority products, high-tech exports, and priority markets.

The Priority Product Action Plan is focused on providing favorable conditions for the production of certain goods for export.

The granting of benefits depends not only on the purpose of the product, but also on the place where it is produced. Thus, preferences are granted to goods that are produced in rural areas and suburbs and provide employment for the population in them. Starting from 2006, a refund of 6.26% is provided to manufacturers of toys and sporting goods on an FOB basis and 2.5% to manufacturers of high-value-added manufacturing products11.

Since the mid-1990s, the export of high-tech products has become one of the most important sources of funds to the Indian budget, which has led to the need to develop a special group of measures in this area. The export promotion plan for high-tech goods includes a refund of part of the export value (1.25% under the terms of the CW) 12.

In addition to export to member countries of the Association of Southeast Asian Nations (ASEAN), the Government of India also encourages export to some other regions of the world. Thus, those exporters whose goods go to countries that are traditionally significant consumers, as well as promising sales markets for Indian products, such as East Africa, South Asia and Latin America, enjoy preferences.

The Priority Markets program includes partial coverage of transportation and other export-related costs. Thus, the exporter receives 2.5% of the value of the goods before loading them on the ship.

In the list of countries where exporters can supply their products with the help of the state, there are 57 states and territories, 8 of which are located in Latin America, and 49 in Africa (44 independent countries; 4 territories owned by European states, as well as Western Sahara, occupied since 1978 by Morocco).

The Priority Market Action Plan closely follows the Priority product plan. The main purpose of linking these two plans is to encourage projects that will ensure the export of manufacturing products while guaranteeing employment for a significant number of people.

Among other tools for implementing a policy of increasing Indian exports, the creation of free economic zones (FEZs) should be noted.

FEZs are created by countries that need foreign investment and technological assistance, but for various reasons do not want to freely allow foreign companies to enter their market. The organization of such zones is also an instrument of regional policy. In developing countries, the closure of the domestic market is associated with the low competitiveness of their companies in comparison with multinational corporations with large financial and technological advantages.

If earlier the FEZ was a territory where exceptional conditions were created that turned it into a part of the global economic complex, now it has become not so much a means of economic development of the region and improving the quality and quantity of products produced, but rather of increasing the competitiveness of the country as a whole. The process of globalization has led to an increase in the scale of trade and economic operations to the level of an entire country, which is becoming a full-fledged player at the macroeconomic level of the integrated world economy. Thanks to FEZs, the state creates unique financial, scientific, and cultural conditions for the production of a particular type of goods or services.

India, as a country that has a number of competitive advantages, among which an important role is played by a combination of developed industry with relatively low cost and relatively high qualification of the labor force, did not become an exception in the process of creating FEZs.

Back in 1965, the first export production zone was established in the city of Gandhidham (Gujarat). Prior to the adoption of the special act on FEZs in 2005, there were 2 types of special zones in which goods were produced for export-export-production zones - and scientific and technological zones, or technological parks for software production. India has 6 zones of the first type and 18 of the second type.

The adopted Act on special Economic zones took into account changes in the external and internal economic environment.

According to the act, not only the state (represented by the federal and/or regional governments) can act as a contractor and organizer of FEZs, but also an individual with the permission of the state. Control over the operation of FEZs should be the responsibility of three parties:A Special Approval Committee (Board of Approval), which must necessarily consist of 19 members (controlled by the Department of Commerce); an Approval Committee and a contractor's representative 13.

In 2008, 531 FEZs were authorized, and only 109 of them were initiated by the State. FEZs have become one of the most important tools for expanding the export of Indian goods. For 2 years after the adoption of the act, the volume of exs-

page 58

the port through the FEZ has grown almost 3 times. The FEZ represents enterprises of all sectors of the Indian economy-from crop cultivation to software production and consulting.

Thanks to changes in legislation, India has increased the attractiveness of its country for hosting the production facilities of large multinational companies specializing in high-tech products, such as Intel, Dell, Nokia, Motorola, etc.


For more than 10 years, India has shown steady growth in the export of goods and services, attracting a large amount of foreign investment in the export-oriented sector. An export-oriented development strategy inherently implies a strong connection between the country's economy and the world market, and the dependence of economic growth on the volume of foreign trade, primarily exports.

The impact of the global crisis on India's foreign trade is mixed.

The recession in developed economies is having a negative impact on India. Falling demand for Indian goods means the country's economic growth is slowing. As a result of the crisis, economically developed countries began to withdraw money and freeze investment projects that were initiated. The Organization for Economic Cooperation and Development countries account for 42% of India's exports of goods and almost 100% of its exports of services.

Figure 2. Export volume through the FEZ.

Source: Compiled from the Department of Commerce, Ministry of Trade and Industry of India, Section on FEZs 14.

The global financial and economic crisis has led to a decline in foreign trade due to reduced access to credit resources. At the same time, it is worth noting that the Indian banking system was well prepared for the crisis due to the tight state financial and credit policy, which somewhat delayed the arrival of the crisis in India (according to Indian researchers-about 1 month 15). However, under the influence of the global environment, Indian banks, even with their funds, have narrowed the volume of lending, which has affected the manufacturing sector and trade.

One of the favorable factors for India was, oddly enough, high oil prices. On the one hand, they negatively affect economic growth, accounting for about a third of the value of imports in 2008. But the current relative increase in oil prices benefits the Gulf states, which in turn are consumers of Indian goods and services. Thus, in the context of a global recession, thanks to the Gulf countries, the slowdown in the Indian economy did not become as rapid as it could have been.

India faces the task of developing a new foreign economic policy in the context of the global financial and economic crisis.

The stated goals in India's foreign economic policy for 2004-2009, formulated in pre-crisis times, need to be adjusted when forming a new foreign trade policy.

Currently, there are no available funds for full-scale export lending. But the curtailment of the implementation of this action plan should not be considered a major setback, as it is unlikely to bear fruit in the short term. Other tools, such as priority product plans and free economic zones, largely reflected the current situation and only contributed to its improvement.

"Priority markets" include countries that are considered promising, and their choice was largely due to India's attempt to" keep up " with China.

In the current environment of active global coverage, foreign trade policy is narrowing to a regional scale and focusing on traditional sales markets - the countries of the Indian Ocean basin and ASEAN. In view of the global crisis, the tendency to reduce the share of economically developed countries in India's foreign trade is increasing. And the increase in the share of Asian countries in India's foreign trade reduces the direct dependence of the Indian economy on the state of affairs in Western Europe and the United States.

In general, we can say that the global financial and economic crisis has intensified the processes in India's foreign trade policy that began long before it.

Vladimirskiy A. A. 1 Exportnye otrasli i exporta Indii [Export industries and export of India]. 1970, p. 153.

2 Ibid.

Gadgil D. R. 3 Planirovanie i ekonomicheskaya politika v Indii [Planning and Economic policy in India]. 1963, pp. 41-45.

Vladimirsky A. A. 4 Decree. soch., p. 15.

5 Ibid.

Malyarov O. V. 6 Ekonomicheskaya reforma v Indii [Economic Reform in India]. 2007, p. 62.


8 Ibidem.

9 Ibid.

10 Foreign trade policy 2004 - 2009/Notification N 1 (Re-2008). General Directorate of foreign trade, Ministry of trade and industry of India -

11 Ibidem.

12 Ibid.

13 The Special Economic Zones Act, 2005 // The Gazette of India, Part II, section I -,%202005.pdf

14 Ibidem.

Mihir Rakshit. 15 India amidst the global Crisis // Economic and political weekly. Vol. XLIV, No. 13, 2009, p. 95 - 106.


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