Globalisation, emerging trends in India's foreign trade and the EXIM policy

1. Meaning of globalisation

Globalisation is the process of integrating a national economy with the world economy through free flow of goods, services, capital, technology, information and, to a lesser extent, people. The IMF describes it as the growing economic interdependence of countries through the increasing volume and variety of cross-border transactions, freer capital flows and the rapid spread of technology.

Features: reduction of trade barriers (tariffs and quotas); freedom for foreign investment; free movement of technology; integration of financial markets; the rise of multinational corporations and global value chains; and common rules administered by the WTO, the IMF and the World Bank.

2. Steps towards globalisation in India since 1991

• Devaluation of the rupee in July 1991, and a move to a market-determined exchange rate (1993) and current-account convertibility (August 1994, accepting IMF Article VIII);
• steep reduction of customs duties and removal of quantitative restrictions on imports (the last removed in 2001 after a WTO dispute);
• opening to FDI and foreign portfolio investment; FEMA replacing FERA;
• joining the WTO as a founder member in 1995;
• Special Economic Zones (Act of 2005) and export incentives;
• regional and bilateral trade agreements: SAFTA, ASEAN, Japan, Korea, and the newer agreements with the UAE (CEPA, 2022), Australia (ECTA, 2022), the EFTA countries (TEPA, 2024) and the United Kingdom (CETA, signed 2025).

3. Impact of globalisation on the Indian economy

Positive effects

1. Higher growth: GDP growth rose above the pre-1991 average.
2. Expansion of trade: trade (exports plus imports) rose sharply as a share of GDP.
3. Foreign investment inflows increased, bringing capital and technology.
4. Foreign exchange reserves rose from crisis levels in 1991 to among the largest in the world.
5. Growth of services: IT, business services and telecom became world-class export industries.
6. Consumer benefits: wider choice, better quality and lower prices of goods such as mobile phones, cars and electronics.
7. Competitiveness: Indian firms modernised and some became multinationals.
8. Remittances from Indians working abroad grew large.

Negative effects

1. Neglect of agriculture: farm growth lagged, and farmers became exposed to world price swings.
2. Pressure on small industry from imports and large firms.
3. Jobless or low-employment growth: capital-intensive and skill-intensive sectors grew fastest.
4. Rising inequality between skilled and unskilled workers, urban and rural areas, and regions.
5. Volatility: exposure to global crises (2008) and sudden outflows of portfolio capital.
6. Persistent trade deficit and dependence on imported oil, electronics and inputs, particularly from China.
7. Environmental and cultural concerns.

4. Emerging trends in India’s foreign trade

• Volume: both exports and imports have grown many times since 1991, and India’s share in world trade has risen, though it remains modest.
• Composition of exports: a shift from traditional items (tea, jute, cotton textiles, raw materials) to manufactured goods: engineering goods, petroleum products, gems and jewellery, chemicals, pharmaceuticals, readymade garments, and more recently electronics including smartphones.
• Composition of imports: crude oil and petroleum products are the largest item, followed by electronic goods, gold, machinery, chemicals and edible oils.
• Direction: the UK was the main partner at independence; now the USA, the UAE, China, the EU and ASEAN dominate. The USA is a principal export market, China the principal source of imports.
• Services trade: software and business services exports produce a large surplus that offsets much of the merchandise trade deficit.
• Rupee trade settlement was permitted by the RBI in 2022.

5. EXIM policy

Evolution. Before 1991 trade was governed by annual import and export policies under the Imports and Exports (Control) Act, 1947, with heavy licensing. The first three-year EXIM policy was for 1985–88. After liberalisation, the Foreign Trade (Development and Regulation) Act, 1992 replaced the 1947 Act and the first five-year EXIM policy covered 1992–97. From 2004 the policy was renamed the Foreign Trade Policy (FTP 2004–09, 2009–14, 2015–20, extended to 2023). It is framed by the Ministry of Commerce and administered by the Directorate General of Foreign Trade (DGFT).

Objectives: raise exports; provide access to inputs and capital goods for export production; improve technology and competitiveness; create employment; and maintain a sustainable balance of payments.

Foreign Trade Policy 2023 (in force from 1 April 2023, with no fixed end date, to be updated as needed):

• a shift from incentives to remission of taxes: RoDTEP (Remission of Duties and Taxes on Exported Products, 2021) and RoSCTL for garments, replacing MEIS, which was challenged at the WTO;
• continuing Advance Authorisation (duty-free import of inputs for exports) and EPCG (Export Promotion Capital Goods, duty-free import of capital goods against an export obligation);
• Districts as Export Hubs, and new Towns of Export Excellence;
• support for e-commerce exports and courier exports;
• automation and online processing of approvals;
• internationalisation of the rupee in trade settlement;
• status-holder (export house) recognition; and
• regulation of dual-use items through SCOMET.

The government’s stated aim is to raise total exports of goods and services to two trillion US dollars by 2030.

How this is examined

January/February 2025: “Examine the effects of globalization on the economic development of India” (10). June/July 2025 (80 marks): “EXIM policy of India (Export and Import)” (10). Trends in foreign trade are a likely 6-mark note. Keep the globalisation answer balanced; the examiner looks for both lists.