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



References: * The Frontline magazine * Wikipedia * The Hindu * The Economic Times * Various websites

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