Influence of Exports on Indian Economy

Topics: International trade, Economics, India Pages: 7 (2092 words) Published: August 22, 2013
Micro Economics

“ Influence of Exports on Indian Economy “

Exports have played an increasingly important role in India’s economic growth in the last two decades. Still Export instability and its impact on the domestic economies of developing countries like India has been of continuing interest. However, studies dealing with the impact of export instability on economic growth have yielded two fairly different views. The 1st view emphasizes the negative impact of export instability on growth. This is based on the variability in export earnings, uncertainty in this also has an impact on private investment decisions and adversely affects both the level of capital. Due to this close link of the government revenue with export revenue instability in the exports causes variability, which amounts to disruptions in public investment and infrastructure. The second view emphasizes that export instability does not inhibit the process of growth, in fact it may encourage the growth. Rise in income due to deviations of export revenues from their trend will leave consumption unchanged and savings will rise which is believed to raise the level of investment and rate of economic growth. EXPORTS IN INDIA:

India has been described as an ‘import substituting country par excellence’. A balance of payments crisis in 1991 led to the initiation of an ongoing process of trade liberalization. These events corrected the in-built systemic bias against exports and they have led to a degree of correction of the price distortions in the Indian economy through the creation of a more open economy. More importantly, increased competition and the presence of firms from foreign markets has injected a greater degree of quality consciousness and customer orientation, which has been largely absent due to the lack of competitive pressures. In the past there were few foreign firms present in the protected domestic Indian market. These changes have reduced the tendency of Indian firms to seek and obtain protection from foreign imports. Policy reform has also reduced the effectiveness of attempts by Indian firms to hide behind high tariff barriers and it has challenged interests that have attempted to perpetuate inefficient production.

In recent years, India’s percentage share in world exports has been increasing steadily, though at a slow pace. Further, India is building up new areas of strength in export markets by moving to computer software exports, exports of pharmaceuticals and engineering manufactures in addition to traditional export strengths in gems & jewellery & textiles. Post 1991, the gradual liberalization of the Indian economy characterized by policy reforms created a conducive environment for India’s exports to flourish and evolve into social and economic growth. Hence, the last two decades have witnessed India transform from a closed economy to a considerable player in the global market. Though India had previously experienced a negative growth in its exports, such a prolonged period of decline had not been witnessed in over two decades. It is evident that India’s export performance and economic growth are closely inter-linked. Over time, the export sector has grown to be a significant earner of foreign exchange and a major contributor to India’s national income. Further, the performance of this sector is highly dependent on domestic as well as global factors. As a consequence of this, domestic as well as international economic policies have a bearing on the overall export performance of India.

India’s export performance :
India’s international trade and reliance on domestic factors fueled growth during the fifties, exports played a smaller role, where India’s exports lost its world market share between 1951-1960 and 1961-70. Till the mid seventies, India’s policy was restrictive and focused on developing the domestic industry, while tightening control on foreign trade . Moreover, India’s exports also...

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