From Protectionism to Global Integration: India's Trade Policy Before and After 1991

This essay was originally published in The 1991 Project by George Mason University’s Mercatus Center

Abstract

Post-independence, the Indian government disfavored free trade and imposed heavy restrictions on imports using tariff and non-tariff barriers while trying to encourage exports using subsidies. The large theme of India’s trade policy during this period was that each instance of trade liberalization and reform was not only backtracked soon after it came into effect but also pulled further back—a case of one step forward and two steps back.

For instance, small reductions in import duties was followed by bigger hikes, or any easing of license requirements was followed by stricter requirements in the next period. This was followed by piecemeal and inadequate liberalization in the 1980s.

The year 1991 witnessed a balance-of-payments crisis. The government responded with currency devaluation, relaxation of the import licensing system, and a broad reduction in tariffs. In the years following the reforms, the Indian economy grew at significantly higher rates, the share of trade in India’s GDP increased, and the share of Indian goods and services in global trade increased.

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