CONCLUSION
International trade is the backbone of our modern, commercial world, as producers in various nations
try to profit from an expanded market, rather than be limited to selling within their own border. Taking
India into account, the economic liberalization of India, started in 1991 with Mr. Manmohan Singh as the
finance minister, introduced policies that opened to international trade and investment.
Before the process of reform began in 1991, the government attempted to close the Indian economy to
the outside world. The Indian currency, the rupee, was inconvertible and high tariffs and import
licensing prevented foreign goods reaching the market. The central pillar of the policy was import
substitution, the belief that India needed to rely on internal markets for development, not international
trade—a belief generated by a mixture of socialism and the experience of colonial exploitation. Planning
and the state, rather than markets, would determine how much investment was needed in which
sectors.
International trade as a proportion of GDP reached 24% by 2006, up from 6% in 1985 and still relatively
moderate
India currently accounts for 1.2% of World trade as of 2006 according to the World Trade
Organization (WTO). Until the liberalization of 1991, India was largely and intentionally isolated from the
world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject
to import tariffs, export taxes and quantitative restrictions, while foreign direct investment was
restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and
government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector.
The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large
percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-
resident Indians. As of 1991, India still had a fixed exchange rate system, where the rupee was pegged to
the value of a basket of currencies of major trading partners. India started having balance of
payments problems since 1985, and by the end of 1990, it was in a serious economic crisis. The
government was close to default, its central bank had refused new credit and foreign exchange reserves
had reduced to the point that India could barely finance three weeks’ worth of imports
India's exports were stagnant for the first 15 years after independence, due to the predominance of tea,
jute and cotton manufactures, demand for which was generally inelastic. Imports in the same period
consisted predominantly of machinery, equipment and raw materials, due to nascent industrialization.
Since liberalization, the value of India's international trade has become more broad-based and has risen
to Rs. 63,080,109 crores in 2003–04 from Rs.1, 250 crores in 1950–51. India's major trading partners are
China, the US, the UAE, the UK, Japan and the EU. The exports during April 2007 were $12.31 billion up
by 16% and import were $17.68 billion with an increase of 18.06% over the previous year
Despite reducing import restrictions several times in the 2000s, India was evaluated by the World Trade
Organization in 2008 as more restrictive than similar developing economies, such as Brazil, China, and
Russia. Its restrictiveness has been cited as a factor which has isolated it from the global financial crisis
of 2008–2009 more than other countries, even though it has reduced ongoing economic growth. India’s
example above proves the importance of international trade in the growth of the economy.
The role of foreign exchange rates in defining an economy can be presented by taking into account the
example of Indonesia and China. One of the main reasons for the breakdown of Indonesia’s economy
was pegging its currency to USD and then suddenly floating it, resulting in huge liabilities. On the other
hand, China’s approach towards pegging its currency with USD has made it the fastest growing economy
in the world due to cheap exports. This difference in results due to pegging of currencies, or we may say,
the effect of exchange rate illustrates the role of other factors that determine the international trade.
China’s advancement is due to its concentration on cheap exports or production within the country
while Indonesia approach was the increase in “hot money” which was easily withdrawn from the
country. The increase in exports from China and India has acted as a catalyst in the growth of the two
nations, as more demand for domestic products has increased production, leading to more employment
and more earning hands which further increases the demand and thus the cycle continues.
Despite complaints about trade imbalances, effects on domestic economies, currency upheavals, and
loss of jobs, the reality of goods and services continually crossing borders will not go away. International
trade will continue to be the engine that runs most nations and therefore it becomes increasingly