9 XII December 2021

https://doi.org/10.22214/ijraset.2021.39682
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 9 Issue XII Dec 2021- Available at www.ijraset.com

A Comparative Study of Indias Foreign Trade in

Pre and Post Reform Era
CA Naveen Kumar Tiwari1, Dr. Sambit Kumar Mishra2
1
Research Scholar, Mewar University, Chittorgarh, Rajasthan
2
Supervisor
Abstract: Foreign trade has been playing a vital role in the economic progress and prosperity of every country.In modern days
foreign trade has assumed an immense prominence and substance for economic development of a country because of
interdependence of economies, increasing specialization and joining regional cooperation. In 1991, the major program of
economic reform were introduced which emphasize on external sector wherein the protective tariffs were decreased, changes
into foreign investment and the restrictive import licensing system was relaxed and simplified. After the New economic reforms,
India’s foreign trade has undergone substantial changes, volume of trade rose up and composition of trade was also frequently
changed. The main objective of the paper is to study the trends of India’s foreign trade pre and post new economic reforms in
India. The entire data for the present study is collected from the secondary sources. The collected data has been analyzed by
using Paired t-test from SPSS software package and graphs. The findings of this paper said that there is positive relationship
between economic reforms and India’s foreign trade. A push has been given to the exports but analyzes says that the increasing
rate of imports is higher in comparison to the increasing rate of exports.
Keywords: Foreign Trade, New Economic Reforms, Exports, Imports, Growth Rate.

I. INTRODUCTION
A country’s position in the international scenario is evaluated by its economic power. The economic strength of a country depends
upon its various economic components. One of the most important economic components is the foreign trade of the country.
Foreign trade has been playing a vital role in the economic progress and prosperity of every country. In modern days foreign trade
has assumed an immense prominence and substance for economic development of a country because of interdependence of
economies, increasing specialization and joining regional cooperation. Foreign trade has worked as “Engine of Growth” for
developing countries like India. The foreign trade of any nation comprises of inward and outward movement of goods and
services, which ultimately affects the inward and outward flow of foreign exchange from one country to another.
For providing, regulating and creating necessary environment for its orderly growth, several Acts have been put in place. The
international trade of India is directed by the Foreign Trade Development & Regulation Act, 1992 and the rules and orders issued
there under. The physical movement of goods and services through various modes of transportation and Payments for Export and
Import transactions are governed by Custom Act, 1962 and Foreign Exchange Management Act, 1999 respectively. (Sahu, 2017) An
analysis of foreign trade indicates the composition and the determinants of foreign trade. By composition is meant the various
commodities exported and the various commodities imported by country. By determinants is meant the factors that influence the
value of the exports and the value of the imports. Based on these criteria, the countries could be classified either as developed
countries or as developing countries. In today’s world, nations cannot exist on economic isolation. In other words, we can say that
any country in the world cannot claim that it is self-sufficient to possess facilities for economical production of all goods and
services that are consumed by its people. Some nations have rich in natural resources and agricultural products such as fertile soil,
timber, fossil fuels, tea, rice, pulses etc., while other nations have scarcity of many of these resources. So, there is a need of
international trade for the benefit of countries.

II. INDIA’S FOREIGN TRADE PRE AND POST REFORMS PERIOD

Since the time of independence in 1947, India’s foreign trade has shown a significant positive growth. Prior to independence, India
was typically a colonial economy, based primarily on the agricultural sector. Major portion of India’s trade was controlled by the
British rulers who exploited the country’s resources by exporting the goods to England at cheaper rates. After independence, Indian
government was facing a major problem related to economic development of the country. At that time growth economy conditions
were not very good.

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This was because it did not have proper resources for the development, not only in terms of natural resources but also in terms of
financial and industrial development. At that time India’s foreign trade was regulated through economic planning. During the period
of 1949-1970, India’s export has grown at a very slow rate. In the words of Harikumar (2014) “In the period of 1950 to 1951, main
products dominated the Indian export sector. These included cashew kernels, black pepper, tea, coal, mica, manganese ore, raw and
tanned hides and skins, vegetable oils, raw cotton, and raw wool. These products comprised of 34 percent of the total exports. In the
period of 1950s there was balancing with payments crunch. The export proceeds were not enough to fulfil the emerging import
demand.” In 1950s, India entered into planned development era. Due to continuous increasing imports and stagnant exports, policy
of import substitution was started in 1960s to cut down on imports. During this period, Indian Government had implemented
the policy of export pessimism and import substitution. During the period of 1971-1991, export performance had improved. In the
late 1960s, Government of India took significant steps like establishment of Indian Institute of Foreign Trade (IIFT) and others such
institutions for the promotion of foreign trade. The world economy was also showing rapid growth during 1970s. The growth rate of
exports was 15.8 percent in 1970s, which declined to 8 percent in 1980s. The decade of 1970 also witnessed an upsurge in the
imports, resulting in a higher growth rate for imports as compared to exports. The export was flourishing at the time of 1970s,
however, showed a declining trend during the starting of 1980s. During the second half of the 1980s, due to recovery in the world
economy, the exports of India grew at a significant rate (17.8 percent). There was found an unquestionable improvement in the
competitive position of India in terms of trade during the period as a result of the increased export subsidies. India has a very high
rate of merchandise trade growth compared with per capita income. For instance, compound annual growth rate of merchandise
trade are rises from 9 percent to 21 percent in 1990-95, whereas per capita income has moved slowly to about 8 per cent over 2000-
05 from around 6 percent in 1990-95. (Yadav, 2012)
India adopted New Economic Reforms in 1991 for the improvement in the economy and country’s growth. Economic Reforms
comprises that the introduction to inventive policies such as abolishing the market trade barriers, boosting economic participation in
private sector, decrease in the fiscal deficit, an increase in exports and reducing imports, etc. for increasing the growth rate of the
economy. Thereafter, the government of India has announced many programs related to Economic Reforms in India. Liberalization,
Privatization and Globalization (LPG) model is one of them. The concept of globalization and liberalization was introduced in this
era and it got momentum through process of economic integration. In the post liberalization period, rate of growth of import and
export increased manifold. Many export promotion policies were started after liberalization. Various schemes have been introduced
by the government from time to time to encourage exports, such as Export Promotion Capital goods (EPCG), Duty Entitlement
Passbook (DEPB), Software Technology Parks (STPs), Special Import License (SIL), Agri Export Zones (AEZ), Export Oriented
Units (EOUs), Duty Free Replenishment Certificate (DFRC), Special Economic Zones (SEZs), Electronics Hardware Technology
Parks (EHTPs), and Biotechnology Parks (BTPs).
In 1991, the major program of economic reform were introduced which emphasize on external sector wherein the protective tariffs
were decreased, changes into foreign investment and the restrictive import licensing system was relaxed and simplified. This policy
mainly focused on liberalization of capital goods and imports from industry for encouraging the domestic and export oriented
growth. India’s trade was changed significantly into the post reform periods. After the New economic reforms, volume of trade
rose up and composition of trade was also frequently changed. India’s chief exports involve machinery items, chemicals, precious
and semi-precious stones and electronic goods. On the other hand, side major imports were involved fertilizers, gold, petroleum and
petroleum products. Through the introduction to new economic reforms, there was also an enlargement of the direction of India’s
foreign trade with the new other countries and regional trading blocs. Before these reforms, India’s exports were limited to OECD
and OPEC countries but after the new economic policy our country turn towards the new Asian countries and consequently China
became a major trading partner of India. In terms of direction, traditionally EU and USA was the major trading partners of India but
from the last few years this scenario has been changed and India’s trade is increasing with mainly East Asian countries.

III. SIGNIFICANCE OF THE STUDY

In the late 1980s, Due to the long term reduced economic performance under protectionist policies, India started eliminating their
trade barriers for the improvement of economic development of the country. During the time of independence, India’s foreign trade
was typically a colonial and agricultural economy and our trade relationship were mainly limited to U.K. During the period
1950 -1990, India’s foreign trade suffered from strict administrative controls. In 1991, the Indian Government introduced the
economic reforms policy of the liberalization and globalization of Indian economy. After the establishment of economic reforms,
India’s foreign trade has started increasing.

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The trade policy of India has undergone various changes time to time and the major changes involved simplification of processes
and techniques, elimination of quantitative restrictions and reduction in the tariff rates. On the other side, after the liberalization and
globalization the foreign trade has been playing a very important role in increasing the GDP level of India. The foreign trade acts as
an engine of growth of India’s trade in terms of increase in Export and Import. Thus, it is essential to understand the trend of the
foreign trade since 1991.
IV. LITERATURE REVIEW
Misra, Jena and Shil (2011), analyzed and evaluated the India’s foreign trade position in terms of volume, composition and direction
during the post liberalization period. This study also suggest the ways and means for improving foreign trade of India on the basis of
the observation of the study. Yadav (2012), explained the regional patterns of inflows and outflows of trading activity which
includes the changes in commodity composition and direction. With this background this study is suggested that globalization has
directed to specialization of production and expansion of consumption. Finally, it can be conclude that manufacturing sector has
increased its share vis-à-vis other tradable sectors and Indian trade is gradually moving away from low value-added product. Singh
(2014), analyzed the trend and composition of international trade during the post liberalization era and also determine the effect of
foreign trade on the economic growth of India. This study shows that though the total exports and imports both have improved but
the growth rate of imports is higher in comparison to the growth rate of exports. Major portion of exports comprises the
manufactured goods while petroleum and crude products hold the major portion of the imported goods. It is also found that there is
positive relationship between export and economic growth while imports are negatively related with the economic growth of
India. Jadhav and Satpute (2014), evaluated India’s direction and composition of foreign trade for the period 2003-04 to 2012-13. It
may be found that there has been a gradual increase in India’s export and imports and also there is a rise in trade deficit. India has
good trading associations with all the topmost countries in the world. More than 50% of India’s total export is with Asia and
ASEAN region and about 60% of India’s total imports are with the same countries. As far as India’s composition of foreign trade
is concerned it also has undergone major changes after independence. With the industrialization of the economy, compositions of
export have undergone changes. India now exports items such as machinery, chemicals and marine products. Thus, we can say that
India now export the same items which we once use to import. This is a good sign for one of the fastest emergent economies in the
world. So in the present research study effort has been made to cast light upon India’s direction and composition of foreign trade
especially after 2000. Mr. A. Harikumar (2014), examined the foreign trade of India during pre and post the liberalization period.
This study found that with the Liberalization, Privatization and Globalization of the Indian economy and following liberal foreign
trade, there had been changes in the business environment. With the development of science and technology there is a change in
the nature of the Indian economy. There had been increase in the trade volume in the India’s international trade, and the exports
from India also have increased. Sachin N. Mehta (2015), examined the trend outline of India’s Exports, Imports and Total
Trade during the pre and post New Economic Policy program with the time series data from 1971 to 2013. Further, this study also
analyzed the impact of New Economic Policy on Exports, Imports and Total Trade of India using paired sample‘t’ test. It suggests
that there is more increment in the growth rate of imports in comparison to growth rate of export. The outcome of paired sample “t”
test suggests that there was positive impact of new economic policy on India’s Exports, Imports and Total Trade. It means after the
new economic policy India’s Exports, Imports and Total Trade had increased significantly. Matore and Sagar (2015), concluded
that, the exports was rises at a decreasing rate but the imports are rises at an increasing rate. As a result, the balance of trade is
becoming unfavorable to India during the post globalization period. It is a significant achievement for India that we have changed
ourselves from a mainly primary goods exporting country into a non-primary goods i.e. manufactured goods exporting country.
Kumar and Sood (2016), examined the growth of foreign trade and balance of payments in pre and post reforms period. This
study also suggest to ways and means for accelerating India’s Foreign Trade. Therefore, the fact that introduction of economic
reforms had a positive impact on India’s foreign trade, cannot be denied. A push has been given to the exports but the increasing
rate of imports is higher in comparison to the increasing rate of exports. As a consequence of it economic reforms have not
flourished in correcting trade imbalance. Kabita Kumari Sahu (2017), examined the India’s foreign trade pre and post liberalization
in India. This study found that the total trade after liberalization has been significantly higher than the total trade before
liberalization and the imports were more than the exports in all the years. Thus, the liberalization period is effective insignificantly
increasing the export of India. This study is suggested that import restriction is necessary on non-essential items to narrow down the
trade deficit.
V. OBJECTIVE OF THE STUDY
The prime objective of the study is to examine the trade pattern of India’ Foreign Trade for a period oftwenty one years before
and twenty one years after the new economic reforms period (1991-1992).

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VI. HYPOTHESIS OF THE STUDY

The following are the hypothesis(s) of the study:
H0: There was no significant increase in trade performance of India after the new economic reformsperiod.
H1: There was a significant increase in trade performance of India after the new economic reforms period.

VII. RESEARCH METHODOLOGY

A. Period of the Study
The present study examines the India’s foreign trade for a period of twenty one years before (1970-71 to 1990-91) and twenty one
years after (1992-93 to 2012-2013) the new economic reforms period (1991-92).
B. Data Collection
The study is mainly based on secondary sources of data. The data has been collected from sources like different issues of the
Handbook of Indian Statistics, the Economic Survey, and the website of Ministry ofCommerce, RBI.
C. Tools for Data Analysis
In this study, tabular and graphical representation tools are used for the analysis of data. Using t-test (Paired samples for means), the
pre-reform period and post-reform period trade performance was tested.

Table 1: India’s Trade during Pre-Reforms Period from FY 1970 to FY 1990

Source: DGCI & S, Kolkata & Economic Survey (Various Issues)

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Figure 1: India’s Trade during Pre-Reforms Period

Source: Author’s Compilation

Table-1and Graph-1presents an analytical study of India’s Export and Import and also shows the percentage of annual growth rate
respectively. Exports and Imports grew with varying rates during the period under study. In graph, values of exports and imports is
showing significantly a rising trend.
Table 2: India’s Trade during Post-Reforms Period from FY 1992 to FY 2012.

Annual Annual Annual

Growth Rate Growth Rate Growth Rate
Year Export (%) Import (%) Total Trade (%)
1992-93 18537 21882 40419
1993-94 22238 19.97 23306 6.51 45544 12.68
1994-95 26330 18.40 28654 22.95 54984 20.73
1995-96 31797 20.76 36678 28.00 68475 24.54
1996-97 33470 5.26 39133 6.69 72603 6.03
1997-98 35006 4.59 41484 6.01 76490 5.35
1998-99 33218 -5.11 42389 2.18 75607 -1.15
1999-00 36715 10.53 49738 17.34 86453 14.35
2000-01 44076 20.05 49975 0.48 94051 8.79
2001-02 43827 -0.56 51413 2.88 95240 1.26
2002-03 52719 20.29 61412 19.45 114131 19.84
2003-04 63843 21.10 78149 27.25 141992 24.41

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2004-05 83536 30.85 111517 42.70 195053 37.37

2005-06 103091 23.41 149166 33.76 252257 29.33
2006-07 126414 22.62 185735 24.52 312149 23.74
2007-08 163132 29.05 251654 35.49 414786 32.88
2008-09 185295 13.59 303696 20.68 488991 17.89
2009-10 178751 -3.53 288373 -5.05 467124 -4.47
2010-11 251136 40.49 369769 28.23 620905 32.92
2011-12 305964 21.83 489319 32.33 795283 28.08
2012-13 300401 -1.82 490737 0.29 791138 -0.52
CAGR 0.1494 0.1682 0.1603
CAGR
(%) 14.94 16.82 16.03
Source: DGCI & S, Kolkata & Economic Survey (Various Issues)

Figure 2: India’s Trade during Post-Reforms Period

Source: Author’s Compilation

Table-2 and Graph-2 presents an analytical study of India’s Export and Import and also shows the percentage of annual growth rate
respectively. Exports and Imports grew with varying rates during the period under study. In graph, values of exports and imports is
showing significantly a rising trend.

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VIII. ANALYSIS AND INTERPRETATION

A. India’s Exports in Pre-Reforms and Post-Reforms period
Table 1 and 2 shows that general trend of India’s Overall exports during the period under study. It is useful to mention that various
policy measures introduced from time to time have a significant impact on the value of exports. Indian exports have covered a long
distance from the time of independence in terms of value. In 1970-71, India’s merchandise exports stood at low level of 2031
million US dollars which moved up to an all-time high level of 18143 million US dollars in 1990-91 before the pre-reforms period.
After the independence, exports have grown at a very slow rate. During 1950s the exports growth rate was 3.6 percent in dollar
terms. Various exports promotion scheme adopted in the 1970s. This has resulted in an annual growth rate of exports in dollar
terms is 6.01 % in 1971-72, 18.44 % in 1972-73, 25.84 % in 1973-74 and so on. The annual growth rate of exports was highest at
30.07 % in 1974-75 during the pre-reforms period under study. Thereafter, this rate was continuously decreasing with many
fluctuations and in the year 1985-86 this rate was recorded in negative values i.e. -9.86 %. In 1990-91, the exports annual growth
rate was 9.22 %. During post reforms era, Indian exports have shown remarkable improvement principally from the period 1992-93
to 1996-97 and from 2002-03 to 2008-09. Exports registered 1.8 times and 3.5 times rises in the year 1992-93 to 1996-97 and 2002-
03 to 2008-09 respectively. In 2009-10, the exports was declined with the slight variation and recorded at 178751 million US
dollars. After that the Indian exports have moved up and touch a new height of 305964 million US dollars in 2011-12. It was also a
highest India’s exports during the period under study. Lastly, in 2012-13 exports value has decreased and stood at 300401 million
US dollars. Table-1 and 2 also shows the Annual Growth rate of India’s exports during pre-reforms period as well as post-reforms
period. Regarding annual growth rate of exports, it was high in 1993-94 and 1994-95 at 19.97 % and 18.40 % respectively, but
declined sharply in 1996-97 to 5.26 %, and continuously till 1998-99 on account of the South East Asian crisis and worldwide
recession. It again recovered to 10.53 % and 20.05 % in 1999-00 and 2000-01 respectively. However, the global economic
slowdown and the events of September 11, 2001 led to a steep fall in the growth rate of exports during 2001-02 (-0.56 %). The
period since 2002-03 has recorded a steady export growth rate up to 2008-09 (13.59 %). The export growth rate declined to -3.53
% in 2009-10 in view of the global meltdown. But in 2010-11, exports made a huge jump and thus the growth rate of exports
recorded at 40.49 % which was also the highest annual growth rate during the post-reforms period under study. The growth rate
values also registered in negative terms during the post- reforms period, such as -5.11 % in 1998-99, -0.56 % in 2001-02, -3.53 % in
2009-10 and -1.82 % in 2012-13. The Annual growth rate of exports is fluctuating in both the periods because of many reasons. It
does not give the clear picture of growth of exports. Therefore, compound annual growth rate is calculated. The CAGR
% of post-reforms period is more than the pre-reforms period. The compound annual growth rate of exports in the pre-reforms
period was 11.57 % whereas in the post-reforms period it went up to 14.94 %. The table clearly shows that exports have increased
during post reforms period although the impact of economic reforms on exports is not very significant but still it is positive.
Therefore through this analyses we can says that, India’s exports moved up with varying rates during the period under study.
B. India’s Imports in Pre-Reforms and Post-Reforms Period
Table 1 and 2 shows that trend of India’s imports during the period under study. During 1970s, India’s total imports growth rate
picked up and was even higher than growth rate of India’s exports. This period was also characterized by a stronger import
substitution strategy and greater government control over economic activities, a strategy which was maintained even after the
occurrence of the India-Pakistan war in 1971 and the first oil price shock. Total imports registered a remarkable growth over 9.8
times in the year 1970-71 to 1989-90 but between 1980-81 and 1989-90, it grew at its lowest less than 2 times. Initially, annual
growth rate of imports was registered at 13 % in 1971-72 but next year it was declined and reached in negative values i.e. -1.15 %.
Thereafter suddenly, this rate shows the tremendous growth and recorded at 50.73 % in 1974-75 and it was also the highest annual
growth rate during the pre-reforms period under study. It was maintained at 13.46 % in 1990-91. There has been a sharp increase in
the import during post-reforms period. This development is the result of repeated devaluation of Indian rupee and increasing import
intensity of both production and consumption during the post-reforms period. The process of structural reforms has further increased
Indian imports. During the period 1990-91 to 2009-10,total imports shows the enormous growth nearly 12 times from 24075 million
US dollars to 288373 million US dollars. Between 1990-91 and 1999-00, imports recorded a growth of 2 times and during 2000-01
to 2009-10 imports were recorded 5.6 times. Between 2000-01 and 2004-05 imports were registered 2.2 time growth and in the year
from 2005-06 to 2009-10, imports fallen down and attained a growth of 1.9 times. The highest total India’s imports was registered at
490737 million US dollars in 2012-13 during the period under study. Table-1 and 2 also shows the annual growth rate of India’s
imports during pre and post-reforms period. Regarding the annual growth rate of imports, it was 6.51 % in 1993-94. The growth
rate was high in the 1995-96 (28 %) and then it declined steeply.

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The growth rate of imports was very low in 2000-01 (0.48 %). It regained in 2002-03, and has grown steadily thereafter and touched
42.70 % in 2004-05 which was also the highest annual growth rate during the post-reforms period under study and then declined up
to 20.68 % in 2008-09. The global slowdown during 2008 had its impact on the economy of almost all the countries, including
India. The impact was such that during 2009-10, both exports as well as imports and this led to negative imports growth rate of -
5.05 % in 2009-10 Lastly, this rate was recorded at 0.29 % in 2012-13. Data clearly shows that like exports annual growth rate of
imports in both the periods is also fluctuating because of many reasons. It does not give clear picture of the growth rate of imports.
Therefore, compound annual growth rate is calculated. The CAGR % of post-reforms period is more than the pre-reforms period.
The compound annual growth rateof imports in the pre-reforms period was 12.80 % whereas in the post-reforms period it went up
to 16.82%. It can be said that economic reforms have increased imports significantly. The CAGR of Imports is higher than that of
exports even in the post reforms period. It is important to mention here that the Indian exports are not increasing at expected rate
instead imports are increasing because of liberalized trade policies.

Table 3: Descriptive Statistics

VARIABLES MINIMUM MAXIMUM MEAN S.D.

Export before 2031.00 18143.00 8136.33 4458.86

1991

Export after 18537.00 305964.00 101880.76 93137.94

1991

Import before 2162.00 24075.00 11626.28 6680.28

1991

Import after 21882.00 490737.00 150675.19 153924.74

1991

Source: Author’s Compilation

Table 4: t-test for India’s Export

Particulars Mean Std. Dev. t-stat. p-value

Pair 1 Export before -93744.42 89033.50 -4.825 .000*
and after 1991
*p<0.05

The mean value in post-reform period is more than the mean value in pre-reform period (Table-3). Hence it can be said that the
export in pre-reform period was less than the export in post-reform period. As per the result of paired t-test, the p value (0.000) is
less than the level of significance value 0.05, indicating that there is significant increase in the exports after the post-reforms period.

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Table 5: t-test for India’s Import

Particulars Mean Std. Dev. t-stat. p-value

Pair 2 Import before -139048.90 148272.00 -4.298 .000*
and after 1991
*p<0.05
The mean value in post-reform period is more than the mean value in pre-reform period (Table-3). In this result, the value of t-
statistic is negative. Hence it can be said that the import in pre-reform period was less than the import in post-reform period.
However, it is more important to know whether the differences in the mean values is significant or not. In the paired t-test results,
the p value (0.000) is less than the value of significance 0.05 that indicating there is significant increase in the imports after the
post-reforms period.
IX. LIMITATION OF THE STUDY
The study is based on secondary data which are collected from several websites. The limitations of secondary data, if any, will also
influence study. The major factors have been discussed, yet there exist more issues which have not been detailed due to time
constraints as well as unavailability of data in the stipulated time. The study is limited to twenty one years before and twenty one
years after the new economic reforms period.
X. CONCLUSION
This study investigates the effect of New Economic Reforms on Exports, Imports and Total Trade for India using time-series data
from 1970-71 to 2012-13. In this regard pre crisis and post crisis period trade performance is compared on the basis of its value.
Over the study period it has been concluded that foreign trade of India has shown an increasing trend after the introduction of new
economic reforms in India. During the period under study, the volume of trade is increasing day by day with the many fluctuations.
The study also indicates that post reform era has certainly helped India in achieving high growth of the economy. The result shows
that in post-reforms period the exports and imports were more than the exports and imports in pre-reforms period but it is also
suggested that the growth rate of imports was higher in comparison to the growth rate of exports. The null hypothesis has been
rejected. So, the study concludes that the introduction of economic reforms in India had a significant positive impact on India’s
foreign trade.
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