Foreign Trade Agreement

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FREE TRADE AGREEMENT: A Double Edged Knife?

1. INTRODUCTION

Indian economic policy after independence was influenced by the colonial experience. The economic policies of the British Raj effectively bankrupted India’s large handicrafts industry and caused a massive drain of India’s resources. An estimate by Cambridge University historian Angus Maddison reveals that India’s share of world income fell by 22.6% in 1700,comparable to Europe’s share of 23.3.%, to a low of 3.8% in 1952.

Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta Chandra Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy. An important postulate of that policy was the tariffs being levied on imported goods. Tariffs are charged by customs official to allow the landing of the imported goods in the port. The purpose behind levying tariffs is mainly to protect the domestic industries from foreign competition. Tariffs serve to protect the domestic industries through the revenue tariffs and the protective tariff. The revenue tariffs contain certain set rates to apply on the imports to increase the revenue earning of the government. Whereas protective tariffs serve to superficially amplify the cost of the imported goods so that the buyer has to pay more money for the purchase of an imported good which can be purchased at a lesser price from an indigenous manufacturer. They expected favorable outcomes from this strategy, because it involved both public and private sectors and was based on direct and indirect state intervention, rather than the more extreme Soviet-style central command system. India’s low average growth rate from 1947-80 was decisively referred to as the Hindu rate of growth, because of the unfavorable comparison with growth rates in other Asian countries, especially the “East Asian Tigers”.

In the late 80s, the government led by Rajiv Gandhi eased by restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. In response, PM Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalization of 1991. The reforms did away with the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since 1990 India has emerged as one of the fastest growing economies in the developing world; during this period, the economy has grown constantly.

India’s Import Policy

Import is the antonym of export. In terms of economies, import is any commodity brought into one country from another country in a legal way. The economic needs of the country, effective use of foreign currency are the basic factors which influence India’s import policy. There are mainly 3 basic objectives of the Indian import policy: * To make the goods easily available.

* To simplify the importing license.
* To promote efficient import substitution.

Current Scenario of Imports in India
There are a few goods which cannot be imported namely tallow fat, animal rennet, wild animals, unprocessed ivory etc. Most of the restrictions are on the ground of security, health, environment protection etc. Imports are allowed free of duty for export production. Input output norms have been specified for more than 4200 items. The norms tell about the amount of duty free imports allowed for specified products. There are no restrictions on import of capital goods. Import of second hand capital goods whose minimum residual life is of five years is permitted. Export Promotion Capital Goods (EPCG) scheme provides exporters to import capital goods at a concessionary custom rates. In the past 30 years Indian imports have risen quite dramatically. At present import accounts for 17% of the GDP. Capital goods have been continued to be imported...
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