INDIA: TRADE POLICY REVIEW 1357

India: Trade Policy Review

V. N. Balasubramanyam

1. INTRODUCTION

NDIA’S record of growth and development since the 1991 reforms is impres-
I sive. During the ten years since 1991 real GDP grew at an annual average rate
of around six per cent. Poverty and infant mortality rates have declined and adult
literacy rates have increased. Exports and inflows of foreign direct investment
(FDI) have registered an upward trend. Is India likely to maintain the relatively
high rates of growth she has achieved in the recent past? Is the country likely to
stick with the reforms and build on them? Are FDI flows likely to increase over
the years? And can India match if not outperform China in the growth and
development league?
These and other issues have surfaced frequently in the debates on India’s
economic policy and performance (Ahluwalia, 2002; IMF, 2002; and World Bank,
2000). India’s Trade Policy Review (2002), the third of its kind, by the WTO
provides a basis for analysing these issues. The WTO report is in three parts: the
first part, following summary remarks by the Chairperson of the Trade Policy
Review Body (TPRB), contains the report by the WTO secretariat, the second
contains a statement by the Government of India and the third part contains the
comments by the discussant on the report and minutes of the TPRB meeting. The
first part, which runs to 140 pages, discusses the economic environment, India’s
trade and investment policy framework, trade reforms and a variety of other
domestic policies which impact on trade. The report by the government covers
much the same ground, but with an emphasis on reforms undertaken since the
previous review in 1998, and it also discusses India’s role in the WTO. The third
part contains the comments of the discussant and member country representatives
on the report, at the TPRB meeting.
This paper discusses the principal issues highlighted in all three parts of the
report under the following heads: economic environment, the trade and invest-
ment policy regime including recent policy initiatives, overall economic policies
and the economic environment which impact on trade and investment and the
outlook for the future.

V. N. BALASUBRAMANYAM is Professor of Economics at Lancaster University.

© Blackwell Publishing Ltd 2003, 9600 Garsington Road, Oxford, OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA 1357
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1358 V. N. BALASUBRAMANYAM

2. THE ECONOMIC ENVIRONMENT

Over the past decade real GDP growth averaged around six per cent per
annum; in the mid-1990s it reached an all-time high of seven per cent, deceler-
ating thereafter to around 5.5 per cent per annum over the five years ending in
2001–02. This is commendable both by India’s historical standards and in com-
parison with the growth rates of other developing countries. Development indica-
tors such as adult literacy rates and poverty levels also show considerable progress.
Even so, these achievements leave a lot to be desired. Although poverty levels
declined from 36 per cent during the mid-1990s to 26 per cent by the end of the
decade of the 1990s, more than 250 million people continue to live below the
poverty line, whatever be the norm for measuring poverty (Datt and Ravallion,
2002). The rate of unemployment is put at around 7.3 per cent and as the Govern-
ment of India report acknowledges, employment in the organised sector increased
by a mere one per cent per annum for most of the last decade, with almost all of
the gains in employment coming from the private sector.
The Planning Commission’s vision for the future is to reduce poverty by
five percentage points by 2005 and a further 15 per cent by 2012 and a doubl-
ing of per capita income over the next decade. These ambitious targets would
require growth rates of around eight to nine per cent and a substantial growth of
exports.
Are these rates attainable? Although the growth rate of six per cent achieved
during the mid-1990s is high by India’s historical standards, it decelerated to
around four per cent in 2000/01 and the average growth rate for the five years
ending in 2001/02 was around 5.25 per cent. Agriculture, which accounts for
22 per cent of GDP and two-thirds of the labour force, grew at around 2.2 per cent
per annum over the period 1995/96 to 2001/02 with wide fluctuations around the
average. Manufacturing, which contributes 17 per cent of GDP and 6.6 per cent
of employment, registered a rate of growth of six per cent per annum, and
services which now account for nearly 49 per cent of GDP and 19 per cent of the
total workforce, grew at an annual average rate of around 8.6 per cent over the
seven-year period. As the report by the Secretariat notes, labour productivity in
agriculture is little more than one-third of the national average. Low levels of
capital investment, inefficient techniques, absence of scale economies and pro-
tection from foreign competition, all account for the low levels of productive
efficiency in the sector. The manufacturing sector is dominated by textiles and
clothing which account for 20 per cent of industrial output, nearly 30 per cent of
India’s exports and provides employment to 38 million people. The Secretariat
report suggests that labour productivity in textiles and clothing may be higher
than the national average.
In general, in the post-reforms period, labour productivity appears to have
increased in most industry groups along with an increase in capital-intensity.

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 INDIA: TRADE POLICY REVIEW 1359

Total factor productivity, however, appears to have remained unchanged or

increased marginally compared with levels achieved during the 1980s (IMF,
2002). It is, though, noteworthy that new entrants to non-electrical machinery and
pharmaceuticals appear to have registered a growth in total factor productivity
(Mahambare, 2001). The widely cited success story, though, relates to computer
software which recorded a total turnover of $8.3 billion and exports of around
$7.2 billion by the end of 2001. Indeed, it is the services sector in general which
appears to be buoyant in the economy.
It is against this backdrop of a relatively inefficient agricultural sector, a slug-
gish manufacturing sector and a resilient service sector, that the prospects of
attaining a growth rate of eight to nine per cent for the economy are to be judged.
As policy makers acknowledge, these growth rates cannot be achieved without
radical reforms and a growth in India’s share of world trade from the present
level of 0.67 to one per cent by 2007, which would require an annual growth rate
of exports of 11.9 per cent. Are there signs that this resolve to institute radical
reforms will be translated into action?

3. TRADE AND INVESTMENT POLICIES

a. Import Policy Regime

The 1991 reforms were notable for the virtual elimination of the industrial
licensing regime, reduction of the statutory peak rate of tariffs from 400 per cent
in 1990 to 50 per cent in 1996, and a lowering of the average tariff rate by half
from 80 per cent in 1991 to 40 per cent by 1996. Also quantitative import
restrictions (QRs) on imports of capital and intermediate goods were removed.
However, imports of most other goods, mainly agricultural and consumer goods,
were restricted, with balance of payments considerations being the ostensible
reason for the continued QRs on these goods. In addition, export restrictions on a
number of goods were eliminated and the FDI regime was relaxed.
The most significant trade policy reform instituted in 2002 was the removal
of QRs on 714 import items. Restrictions, though, continue to be in place on a
select number of medicines and drugs, explosives and ammunition and jewellery
for reasons of health, safety and public morals, as the Secretariat report notes.
Also notable are the import restrictions on used motorcars, which are over three
years old. Imports of secondhand cars which are more than three years old are
subject to a number of screening procedures for roadworthiness and they may
be imported only through specified ports. The ostensible reason for these restric-
tions is the protection of the environment, which though rings hollow, as domest-
ically manufactured cars of the same age as the imported ones are not subject to
the stringent standards applicable to imported cars.

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1360 V. N. BALASUBRAMANYAM

Since the last review of India’s trade policy in 1998, the applied MFN average
tariff rate has been reduced from 35 to 32.3 per cent and is expected to decline
further to 29 per cent. These applied rates, however, differ considerably from the
bound rates. India’s commitments with the WTO suggest that the final average
bound tariff is likely to be 50.6 per cent in 2005, with an average of 115.7 per
cent in agriculture and 37.7 per cent in non-agricultural products. Tariff disper-
sion measured by the standard deviation at 13.0 per cent is high. Tariff rates
escalate from 29.4 per cent for unprocessed materials to 32 and 33 per cent
respectively, for semi-processed and processed products, which suggests fairly
high effective rates of protection for final products.
Imposition of anti-dumping duties (ADs) is another feature of the tariff regime.
Since 1995, 250 anti-dumping cases have been initiated and the number of anti-
dumping measures increased from 19 in 1997 to 131 in 2001. Most of the anti-
dumping measures are against imports from the European Union and China, with
chemicals and chemical related products accounting for 47 per cent of the meas-
ures initiated. In addition, India has also resorted to safeguard measures with
safeguard duties on eight products. India also provides a wide range of tariff
exemptions, with over 100 types of exemptions, each running into several pages.
These and other measures and the procedures for implementing them are pains-
takingly documented in the report by the Secretariat. As the report notes, India’s
tariff regime with its complex structure and numerous exemptions is far too
opaque and results in administrative problems. Apart from that, it results in a
waste of resources and time for businesses, which have to cope with the complex
structure. The wide disparity between the applied MFN tariffs and the bound
tariffs introduces a high degree of uncertainty concerning the future course of
policy. The discussant on the report and the Japanese delegate both note the high
degree of unpredictability that this disparity between the MFN and the bound
rates introduces.
Apart from the complexity and unpredictability of the tariff regime, it is not at
all clear whether or not India has made much progress with trade liberalisation
since the last trade policy review. Admittedly QRs have been eliminated on a
number of products and the average tariff rate has come down. Even so, India’s
average tariff rates are much higher than those in most other emerging economies
such as Indonesia (8.8 per cent), Malaysia (10.2 per cent), Philippines (9.7 per
cent) and Thailand (17.1 per cent). One reason for the relatively high level of
duties is that they have for long been a major source of government revenues and
continue to contribute more than 40 per cent of the net tax revenues of the
Central Government. Indirect taxes, which include a multiplicity of excise duties
and taxes on services, contribute 60 per cent of the total tax revenues. The
government intends to increase the contribution of direct taxes from the present
level of 3.4 per cent of GDP to 10 per cent. The government is also attempting to
simplify the structure of indirect taxes by introducing a nationwide harmonised,

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 INDIA: TRADE POLICY REVIEW 1361

value added tax (VAT). Such harmonisation would remove the distortions in the
present complicated system and promote the competitiveness of Indian industry.
The proposal to introduce VAT, however, has run into heavy weather, mostly
because of the opposition from traders as opposed to manufacturers, especially
from those in the capital city of Delhi, along with those in the states of Rajasthan
and Madhya Pradesh. As the Economist (24 May, 2003) puts it:
. . . traders are an important fund-raising lobby and vote bank, especially for the ruling Bharatiya
Janatha party. Delhi is a trading rather than a manufacturing centre and traders, unlike manufac-
turers, basically see the new VAT as an expensive hassle that will curb tax evasion.

The discussant on India’s trade policy review at the TPRB pointedly asks, given
India’s intention to adopt a consensual approach to restructuring the economy,
how would India go about implementing various tax and tariff reforms which she
intends to put in place? One could sympathise with the Indian delegate’s reply,
which is couched in terms of what has been achieved and reiterates the contours
of the road map to guide further reforms, which the government has in place.
Unfortunately the road map is strewn with obstacles which are hard to circumvent,
let alone remove.
India’s resort to anti-dumping duties is yet another issue raised at the TPRB,
predictably by Japan and the EU, the two country groups which are the main
targets of India’s ADs. It is also interesting to note that whilst the US expresses
its concern at the proliferation of non-tariff barriers and hidden subsidies on
exports, it is silent on the issue of ADs imposed by India. Whether ADs are
measures undertaken to counter dumping or they are, in fact, instruments for
protecting inefficient domestic industries from import competition is arguable.
However, as developed countries such as the US have frequently resorted to such
measures, one may well argue that what is good for the goose is good for the
gander. India could also argue that she is even-handed in implementing tariff
policy, whatever be the instrument in question, imposition of ADs too are subject
to complex procedures, overseen by the Directorate General of Anti-Dumping
and Allied Duties! The solution to the problems posed by ADs may be their
abolition altogether by the WTO. As T. N. Srinivasan argues:
rather than attempt to toughen the discipline on ADMs (anti-dumping measures), India and
other developing countries should take the lead in pushing for the abolition of ADMs altogether.
ADMs are the analogue of chemical and biological weapons in the arsenal of trade policy
instruments (Srinivasan, 2001).

India’s heavy protection of its agriculture from import competition is yet

another contentious issue. Agricultural imports account for only a small proportion
of total merchandise imports, around four to seven per cent. As the Secretariat
report states:
the agriculture sector has been shielded from foreign competition by tariffs and non-tariff
barriers including quantitative restrictions, import licensing, and marketing restrictions.

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Wherever QRs have been removed in recent years, the sector has been compens-
ated with appropriate tariff protection to protect the interests of farmers.
The agricultural sector has for long suffered from an anti-agriculture bias
imparted by the high levels of protection afforded to the manufacturing sector
and overvalued exchange rates. The 1991 reforms, which reduced both tariffs on
manufactures and the overvaluation of the exchange rate, improved the profitabil-
ity of agriculture. As Gulati’s (1998) incisive analysis of Indian agriculture sug-
gests, globalisation of the economy, including agriculture, offers an opportunity
to correct for the anti-agriculture bias in Indian trade policies that have been in
existence since the 1950s. Also, as Gulati notes, globalisation of agriculture must
be accompanied by removal of supply-side bottlenecks and the provision of a
protective cover to the poor. The set of policies Gulati suggests would promote
both efficiency and equity.
In general, the review of the import regime provided by the Secretariat leaves
the impression that the import policy regime not only continues to be complex
and opaque but also shows no radical departure from the policies in place in
1998, the date of the last review. It is also difficult to gauge if the overall degree
of protection the various sectors enjoy has diminished since the last review.

b. Export Policy Regime1

India’s export policy regime is no less complex than the import regime. Trade
policy in general is formulated and implemented by the Ministry of Commerce
and Industry. The Ministry is assisted by a multitude of agencies including the
Prime Minister’s Council on Trade and Industry, task forces set up by the Planning
Commission and ad hoc groups appointed by the Government from time to time.
Incentives for the promotion of exports include a variety of measures includ-
ing duty drawbacks on imported inputs used in the production of exportables,
exemptions from tariffs on specified imports of capital goods and exemptions
from income tax for exporters based in the free-trade zones (FTZs). In addition,
there are a variety of export finance and insurance schemes. All this and the
attendant rules and regulations governing these schemes are narrated in some detail
in the report of the Secretariat. Free Trade Zones (FTZs) encompassing export-
processing zones, export-oriented units and special economic zones constitute yet
another export promotion measure. These zones generally conform to the observed
pattern with establishments on the zones accorded access to duty-free imports of
inputs and infrastructure facilities including land, power, water and telecommunica-
tion facilities. The FTZs harbour a range of industrial units – electronics, engi-
neering units, chemicals, textiles and clothing, and gems and jewellery.

1
For a review of evidence relating to links between export growth and real GDP growth, see
Greenaway and Sapsford (1994).

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As the Secretariat Report notes, although FTZs in one form or the other have
proliferated in recent years ‘there is little evidence to suggest that they have been
successful in boosting exports’. While the absolute value of exports from these
zones have increased their share of total exports has risen only marginally from
3.7 per cent in 1997/98 to 4.2 per cent in 1999/2000. The report’s comment on
other incentive schemes also suggests that they have not been effective in pro-
moting exports. Institution of a battery of incentives and FTZs may not do much
to promote exports, simply because they are in the nature of antidotes to distor-
tions present elsewhere in the economy. Most of the export promotion schemes
are designed to offset the anti-export bias imparted by tax and import policies.
Introduction of new distortions in the form of export promotion schemes in order
to correct existing distortions results in a proliferation of distortions which cause
more harm than good for the promotion of exports (Greenaway and Milner,
1987; and Panagariya, 2000). Instituting new FTZs when the existing ones
have failed to deliver the goods makes little economic sense. FTZs are a classic
example of the Second Best: they are islands of free trade, at least in theory,
amidst a sea of protectionism. They may or may not promote exports in a big way;
in the case of India they appear to have done very little.
Admittedly India’s exports have increased since the reforms in 1991. As the
Government of India’s report notes in the post-reform period the annual rate of
growth of exports was around 10 per cent and India’s share in world exports in-
creased from 0.5 per cent in the first half of the 1990s to 0.7 per cent in 2000– 01.
Growth of exports is a factor in the relatively high growth rates of GDP in the post-
reform period. Even so, exports have not exhibited the momentum required for
them to act as an engine of growth. The composition of India’s exports of manu-
factures has not changed much over the years; textiles and clothing (27 per cent),
diamonds (14 per cent), chemicals (10 per cent), account for half of total exports.
Exports of services though have grown rapidly, with the growth of software
exports being the major success story. The group of miscellaneous services,
which includes software, financial and management services, contributed $14.67
billion to total foreign exchange earnings in the year 2001/02. Exports of soft-
ware increased from $4 billion in 1999/2000 to $7.2 billion in 2001/02. Total
receipts from invisibles in the year 2001/02 amounted to $36 billion, which
compares with total receipts of $44 billion from the export of goods. Whilst the
service sector in general shows an impressive growth it may be a bit premature to
argue that India is destined to be a service economy. Sustained growth of the
sector is dependent on world market conditions and also on the development of
infrastructure facilities at home.
It is a fact that various non-tariff barriers imposed by the developing countries,
outlined in the report by the Government of India, are an obstacle to the growth
of India’s exports. But not all of these obstacles are specific to India: many other
developing countries, including China, have successfully expanded their exports

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despite these barriers. There are, though, issues relating to ‘movement of natural
persons’, access to export markets for services, reduction of barriers to exports of
agricultural products, which are of concern to India. The report by the Govern-
ment of India draws the attention of the WTO to these issues.
The problem with India’s exports appears to reside in her welter of complex
and opaque policies and various sorts of distortions these policies have intro-
duced and the cumbersome nature of the administrative procedures in place. It is
not also apparent that the country has liberalised international trade in a major
way since the last trade policy review. Removal of QRs and the institution of
FTZs and assorted export incentives does not amount to trade liberalisation.
What is required is a cohesive set of policies designed to promote resource
allocation on the basis of comparative advantage of the differing sectors and
promotion of productive efficiency.

c. FDI Regime2
Relaxation of various controls on FDI formed a significant part of the 1991
reforms. Ceilings on equity ownership by foreign firms in most sectors were
removed, automatic approval of investments up to 51 per cent of equity holdings
were allowed and trade balancing and indigenisation requirements were relaxed
in the case of specified sectors. The report by the government claims that ‘the
FDI policy framework of India today is amongst the most liberal investment
regimes’. Why then has the country attracted such low volumes of FDI relative to
most other developing countries, principally China? Annual flows of FDI into the
country are around $2 to $3 billion. This figure pales into insignificance com-
pared with annual inflows of around $45 to $50 billion of FDI which China
receives. The Secretariat report sums up the reasons for the relatively low inflows
of FDI, especially so in export-oriented industries:
the reasons for this [low volumes of FDI], other than the remaining FDI restrictions, include the
anti-export bias of foreign trade policies, the unusual rigidity of labour laws, the policy of
reservations for the small scale sector, the weakness of infrastructure (especially power, ports,
roads, and railways) and slow and cumbersome administrative procedures.

This is quite a formidable list of deterrents to FDI. High amongst these must
be the cumbersome administrative procedures and the anti-export bias of trade
policies. It is reported that it takes ten permits to start a business in India against
six in China, while the median time it takes is 90 days in India against 30 days in
China. And a typical foreign power project requires 43 clearances at central
government level and another 57 at state level (Financial Times, 4 April, 2003).

2
For a review of evidence relating to trade regime and FDI see Balasubramanyam, Salisu and
Sapsford (1996).

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It is though arguable if India should aspire for the staggeringly high levels of
FDI that China attracts. The two economies may differ significantly from one
another in the structure of the economies, endowments of human capital and
skills and the ability to assimilate imported know-how and skills. India with its
relatively long history of industrialisation and endowments of scientific and skilled
personnel may be better placed to utilise FDI much more effectively than China
(Balasubramanyam, 2002). This though is not to say that India should revert to
its pre-1990s policies towards FDI characterised by suspicion and distrust of
foreign firms. It is just that its requirements of FDI may be around $10 to $12
billion per annum rather than the vast amounts China attracts. But to achieve
even these relatively modest levels of FDI, India would have to streamline its
administrative procedures, eliminate corruption and red tape and above all elimin-
ate the anti-export bias of her trade policies and improve infrastructure facilities.

4. POLICIES WHICH IMPACT ON TRADE AND FDI

The Secretariat report provides a detailed review of the overall policy frame-
work of India which impacts on trade and foreign investment. These include taxation
and public expenditure policies, labour laws, policies towards state-owned enter-
prises and small-scale industries. Growing budget deficits and a relatively large
share of indirect taxes including customs duties in total tax revenues mark India’s
public finances. The reliance on import duties for revenues limits the scope for
reducing tariffs. The government’s attempts at reducing this dependence on tariff
revenues by streamlining the structure of indirect taxes, have had little success, as
stated earlier. The cause for concern though is the large budget deficits. The central
government’s fiscal deficit increased from 4.1 per cent in 1996/97 to 5.7 per cent
in 2001/02. The overall budget deficit which includes the deficits of the state
governments was as high as 10.6 per cent of GDP in 2000/01. As Ahluwalia notes:
not only is this amongst the highest in the developing world, it is particularly worrisome
because India’s public debt to GDP ratio is also very high at around 80% of GDP. Since the
total financial savings of households amount to only 11% of GDP, the fiscal deficit effectively
pre-empts about 90% of household savings for the government (Ahluwalia, 2002).

These substantial budget deficits are a result of heavy food and fertiliser
subsidies, which accounted for more than 90 per cent of the total subsidies outlay
of $6.5 billion in 2001/02, the draft made by inefficient state-owned enterprises
on the budget, interest payments on debt and the inadequate charges for public
services such as power, irrigation and road transport both at the centre and state
levels. The report by the Secretariat notes that government investment in public
sector enterprises increased from Rs 290 million in 1951 to some Rs 2526 billion
in the year 2000. Total budgetary support to public sector enterprises amounted
to 3.9 per cent of GDP in 2001/02. The government is promoting privatisation of

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inefficient public sector enterprises, but progress has been slow. The govern-
ment’s attempts at reducing subsidies and privatising public sector enterprises
inevitably runs into opposition from vested interests and has to cope with prob-
lems associated with creation of jobs for those displaced from inefficient public
enterprises. The consequences of these high deficits, though, are relatively high
interest rates, 7.3 to 9.2 per cent in 2001/02, and crowding out of private invest-
ment. In the absence of growth in productive investments, growth and exports
would suffer, and the government’s objective of attaining eight to nine per cent
growth rates would be unattainable.
India’s labour laws which prohibit companies from dismissing workers
without the permission of the state governments and compel companies to accord
full-time employee status to part-time workers are another deterrent to both
domestic and foreign investment. And these laws have resulted in a low growth
of employment in the formal sector, with most employers resorting to the informal
labour markets. The existing labour laws promote neither equity nor productive
efficiency. Here again the political imperatives are such that the government is
unable to do away with the labour laws.
Yet another policy measure implemented in the interests of promoting
employment, encouraging entrepreneurship and prevention of concentration of
economic power relates to reservation of specified sectors of manufacturing to
small-scale industries (SSIs). These are defined as firms with investments in plant
and machinery of less than Rs 10 million, with higher ceilings of Rs 50 million
for high-technology and export-oriented units. SSIs account for 40 per cent of
manufacturing production and 35 per cent of exports. As the Secretariat report
notes, the reservation of economic activity for selected sectors may have crippled
growth in several sectors such as garments, toys and leather goods and restricted
exports. Small-scale industries are not necessarily labour-intensive in their opera-
tions and in the absence of scale economies and competition they are unlikely to
promote efficiency or entrepreneurship. Recently the government has liberalised
entry into the sector and removed several items of production from the list of
industries reserved for the small-scale sector. These measures though, as always,
are hemmed in by qualifications. Medium- and large-scale units can also manu-
facture some 799 items reserved for the SSIs only if they apply for and obtain a
licence, and they must export a minimum of 50 per cent of their production.
Foreign firms are allowed a maximum of 24 per cent of equity, but they must
obtain approval and export 50 per cent of their output.

5. OUTLOOK

Can India sustain a growth rate of six per cent per annum, let alone achieve the
eight to nine per cent target rates? Based on the extensive survey of policies and

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performance provided by the Review several scenarios for the future can be
sketched. The most optimistic one is that India will be able to achieve the tar-
geted growth rates. It could be argued that the performance of the economy over
the decade of the 1990s, both in terms of growth and development, justifies
optimism. The economy did respond to the liberalisation measures and none of
the policies instituted in 1991 have been reversed. Admittedly savings and invest-
ment rates are low relative to that achieved by high performers such as China, so
too is the volume of FDI the country has attracted. But then India achieved a
growth rate of six per cent with a little more than a half of China’s savings rate
and less than one-tenth of China’s annual inflows of FDI. The buoyant service
sector, especially the so-called miscellaneous services that includes software, has
contributed to the sizeable volumes of India’s foreign exchange reserves in recent
years. If only the country can put its house in order by reducing the fiscal deficit
to a manageable level of say four per cent of GDP from the current levels of
ten per cent, further reduce the level of protection from international competition
afforded to domestic industries, remove distortions such as the reservation of
specified sectors of economic activity to SSIs, and increase the levels of domestic
savings and inflows of FDI, a rate of growth of eight per cent in the near future
is a distinct possibility.
The pessimistic scenario would note that the growth rate decelerated during
the last two years and the fiscal deficit has increased over the years. The growth
rate of six per cent which India achieved over the last decade may be fortuitous,
a response to the initial bout of liberalisation of the economy in 1991. There
has been more rhetoric than action on the so-called second generation radical
reforms, one set of protectionist measures have been replaced by others, and each
and every policy initiative designed to remove the anti-export bias of the overall
policy framework is hemmed in by the regulations and qualifications appended to
the initiatives. The opening statement by the representative of India at the TPRB
meeting captures the problems of implementing reforms in a democracy:
the reforms undertaken had been carried out through a process of consultation and consensus,
taking into account the varied needs of the different segments of the population. . . . India wanted
the changes to be sequenced carefully and their implementation to be closely monitored so that
they had positive support from all sections of society.

Put another way, vested interests of groups who could sway elections had to
be protected and the desire of bureaucrats to monitor, control and regulate the
economy had to be satiated. Given all this, India may at best maintain a rate of
growth of around five per cent, but a sustained rate of growth of eight per cent
may be too ambitious.
One thread which runs through the Secretariat report is the highly complex
nature of the policies and the equally cumbersome procedures for their imple-
mentation. This feature more than anything else may be the major constraint on
growth. It is hard to say whether these complexities are designed to ensure that

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the most vulnerable groups in the country do not suffer the short-term costs of
liberalisation or they are just a reflection of the desire of bureaucrats and policy
makers to retain power and control over economic activity. Perhaps the solution
to India’s problems with introducing meaningful reforms designed to promote
efficiency and growth, is yet another crisis of the sort the economy was faced
with in 1991 which compelled policy makers to initiate reforms. It can only be
hoped that well before such a crisis occurs India will have the political will and
determination to risk the wrath of vested interest groups and introduce the second
generation of reforms.
In general, India’s Trade Policy Review by the WTO is a valuable document,
a compendium of information on various aspects of India’s economic policy and
performance. It raises a number of issues for discussion and debate and its guarded
comments on many of the policies in force appear to have facilitated the discus-
sion of the report at the TPRB.

REFERENCES

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