Essay on the Impact of New Policy on Trade Balance in India

The new trade policy was able to bring about an immediate reduction in our trade deficit. From Rs. 10645 crore in 1990-91, it fell to just Rs3 810 crore in 1991-92, rose to Rs. 9687 crore in 1992- 93 and again fell to Rs. 3350 crore in 1993-94.

However it resumed its upward movement in 1994 with imports racing ahead of exports, and touched a phenomenal figure of Rs. 55675 crore in 1999-2000.

This was in spite of the fact that exchange rate was also steadily moving against rupee. However, there were net surpluses on account of “invisibles” and on capital account, which enabled us to rapidly add to our foreign exchange reserves.

thumbs.dreamstime.com

As against a figure of just $3962 million at the end of 1989-90, reserves rose to $5834 million at the end of 1990-91 Jumped to $ 19254 million at the end of 1993-94 and further to $25186 million at the end of 1994-95.

A more or less uninterrupted increase in reserves raised the figure to $70445 million by the end of December 2002, to over $102 billion in January 2004, and further to over $ 131 Billion March 2005.

Faced with a persistent trade deficit, the government announced an additional set of measures on 31^aMarch 1999 for 1999-2000. Its main highlights included an enlargement of the free list of imports by 894 items and put 414 items under the category of Special Import License. It was decided to give greater operational freedom to Free Trade Zones and all Export Promotion Zones were to be converted into Free Trade Zones.

These measures were followed by further changes in Import-Export Policy on 31″ March 2000. Setting up of Special Economic Zones (SEZs) was an important feature of this policy. Units located in these zones were allowed to import duty free capital goods and raw materials.

These zones were to be treated as foreign territories for the purpose of trade operations and tariffs so that goods going to SEZs were to be treated as deemed exports. However, the SEZ units were not allowed to sell their output in the domestic market. In case this was done, the sold quantity was to be taken as deemed imports and subjected to duties livable on such imports.

In the following year (2001), 715 additional items were freed from import restrictions. They included a large number of commonly used consumption goods which would be ordinarily considered non-essential.

Restrictions were also relaxed on import of used vehicles and several other items including farm, meat and poultry products. Simultaneously, in addition to a wide spectrum of export promotion measures, the policy aimed at extending priority to the promotion of agricultural exports and steps were taken to make it operational.