India as an emerging market, India's position in global trade, and liberalisation, privatisation and integration with the world economy

1. India as an emerging market

An emerging market is an economy moving from low income and state control towards higher income, open markets and integration with the world economy, growing faster than developed economies. The term was coined by Antoine van Agtmael of the International Finance Corporation in 1981. India is counted among the leading emerging markets, and among the BRICS economies.

Why India attracts international business:

• One of the fastest-growing large economies, now among the five largest by nominal GDP.
• The world’s most populous country, with a young workforce and a growing middle class.
• A large pool of English-speaking engineers and managers.
• A democratic system, an independent judiciary and a developed capital market.
• Reforms: GST (2017), the Insolvency and Bankruptcy Code (2016), the four Labour Codes (in force from 21 November 2025), digital public infrastructure (Aadhaar, UPI).
• Policy push: Make in India, PLI schemes, National Logistics Policy (2022), PM Gati Shakti.

Weaknesses: infrastructure gaps, regulatory delay, slow contract enforcement, low share of manufacturing in GDP, skill shortages, and inequality.

2. India in global trade

(a) Historical position

India’s share in world exports fell from about 2 per cent around 1950 to a low of about half a per cent in the 1980s under import substitution. It has risen since 1991, especially in services.

(b) Composition of exports

• Services: software and IT-enabled services, business services, travel and transport — India is among the world’s largest exporters of commercial services and has a large surplus on services.
• Merchandise: engineering goods, petroleum products, gems and jewellery, pharmaceuticals, electronics (especially smartphones, the fastest-growing item), chemicals, textiles and garments, rice, marine products.

(c) Composition of imports

Crude oil and petroleum products (the largest item), electronic goods, gold, coal, machinery, chemicals, vegetable oils, fertilisers. India runs a persistent deficit on merchandise trade, partly offset by services exports and remittances.

(d) Direction of trade

Main partners: the United States (the largest export market), China (the largest source of imports, with a large deficit), the UAE, Saudi Arabia, Russia (oil since 2022), the EU countries, Singapore and the ASEAN economies. Trade has shifted towards Asia and the Gulf.

(e) Trade agreements

Recent agreements: India–UAE CEPA (in force May 2022), India–Australia ECTA (December 2022), the India–EFTA Trade and Economic Partnership Agreement (signed March 2024, in force 1 October 2025), and the India–UK Comprehensive Economic and Trade Agreement (signed July 2025). The Foreign Trade Policy 2023 sets the goal of USD 2 trillion of exports by 2030.

(f) Problems

A small share of world merchandise trade relative to India’s size; high logistics cost; concentration in a few products and markets; dependence on imported energy, electronics and Chinese inputs; quality and standards issues in the EU and US; and protectionism abroad (tariff increases, carbon border taxes).

3. Liberalisation

Liberalisation means reducing government controls on economic activity — removing licences, quotas and restrictions — and allowing market forces to work. India’s reforms began in July 1991, after a balance of payments crisis in which foreign exchange reserves fell to about two weeks of imports and gold was pledged abroad.

Measures:

1. Abolition of industrial licensing except for a short list of industries (New Industrial Policy, 24 July 1991).
2. MRTP controls on large firms removed (the MRTP Act was later replaced by the Competition Act, 2002).
3. Foreign investment opened, first with automatic approval up to 51 per cent.
4. Rupee devalued in July 1991, made convertible on current account in 1994.
5. Customs duties cut steeply; quantitative restrictions on imports removed by 2001.
6. Financial sector reform after the Narasimham Committee (1991): interest rates freed, private banks allowed.
7. Tax reform: lower income-tax rates, then GST.

4. Privatisation

Privatisation is the transfer of ownership or management of public enterprises to the private sector, or the opening of areas reserved for the public sector to private firms.

Forms: disinvestment (sale of a minority stake — LIC’s IPO in 2022); strategic sale with transfer of management (Air India to the Tata group, completed January 2022); denationalisation of reserved sectors (telecom, airlines, banking, insurance, defence production); leasing and asset monetisation; and public–private partnership.

Arguments for: efficiency, reduced fiscal burden, competition, better service, resources for the government. Arguments against: sale of assets at low prices, job losses, private monopoly, and neglect of social goals. The number of sectors reserved for the public sector has been cut to atomic energy and railway operations, with the 2021 Public Sector Enterprises Policy keeping a minimum presence only in strategic sectors.

5. Integration with the global economy

The combined effect of liberalisation, privatisation and globalisation (LPG) has been integration: trade (exports plus imports) is a much larger share of GDP than in 1991; FDI and portfolio investment flow in; Indian firms invest abroad; and Indian markets move with world interest rates, oil prices and capital flows. Integration brings growth and choice, and exposure to global shocks (2008, 2020). The Business Environment note on liberalisation, privatisation and globalisation covers the same reforms from the Semester 1 angle.

How this is examined

The position-of-India essay: a paragraph on India as an emerging market, then history, composition, direction, agreements and problems, each as a sub-heading. Short notes on liberalisation and privatisation each need the meaning, the 1991 background, five or six measures or forms, and arguments for and against.