(a) Briefly explain the growth and structure of India's foreign trade in the post-liberalization period. (20 marks) (b)…

(a) Growth and structure of India's foreign trade after liberalisation

Growth. Merchandise exports rose from about 18 billion dollars in 1990-91 to about 450 billion in 2022-23, and imports grew faster, so the trade deficit widened (about 265 billion dollars in 2022-23). Trade in goods and services as a share of GDP roughly tripled from about 15 per cent to over 45 per cent. Services exports, led by software and business services, grew even faster and now cover a large part of the goods deficit. Growth came in bursts, for example in 2003-08, with setbacks in 2008-09, 2013-14 and 2020-21.

Structure. (i) Composition of exports: agriculture and traditional goods (tea, jute, textiles) lost ground to engineering goods, petroleum products, gems and jewellery, chemicals and pharmaceuticals, so manufactures now form over two-thirds of goods exports. (ii) Imports: dominated by crude oil, gold, electronics and machinery, with capital and intermediate goods rising after tariffs were cut. (iii) Direction: from Europe and the Soviet bloc towards Asia, the US, the Gulf and China, with large deficits with China. (iv) Services are the largest surplus item, together with remittances.

Thus trade is larger, more diversified and more tied to Asia, but still depends on oil and gold imports and a narrow export base.

(b) Contribution of Special Economic Zones to foreign trade

The SEZ Act 2005 and rules of 2006 created duty-free, single-window zones for exports, with income tax and GST benefits.

Contribution. SEZ exports have grown many times over since 2005 and account for a substantial share (roughly a quarter to a third) of India's exports, mainly in IT and ITES, engineering and pharmaceuticals. They attracted investment and created jobs (over two million), and Gujarat, Andhra Pradesh and Tamil Nadu benefited.

Criticism. Much of the land remains unused or diverted, the tax foregone was large, and many units shifted existing business rather than creating new exports (CAG, 2014). The imposition of MAT and the dividend tax in 2011 and the end of the income tax holiday from April 2020 lowered the attraction. Land acquisition led to protests, and global competition from East Asian zones is stronger because those had better infrastructure and labour laws.

Hence SEZs have helped exports but less than hoped, and the reform proposals aim at converting them into wider development hubs.

(c) Salient features of the Foreign Trade Policy, 2023

The policy came into effect on 1 April 2023 as an open-ended policy with no sunset date, to be updated as required, aiming at exports of 2 trillion dollars by 2030. Its main features:

(i) Four pillars: incentive to remission, export promotion through collaboration with states and districts, ease of doing business with lower transaction costs, and emerging areas.

(ii) Shift from incentives to remission of duties and taxes (RoDTEP and RoSCTL) in line with WTO rules.

(iii) Districts as export hubs through the One District One Product approach, with more Towns of Export Excellence.

(iv) Facilitation: an amnesty scheme for pending Advance Authorisation and EPCG obligations, self-certified origin and more e-initiatives.

(v) Support for e-commerce exports, merchanting trade and Star Export House recognition, and settlement of trade in rupees.

The policy is facilitative, but outcomes depend on execution and on global demand.