India’s Trade Policy in the 21st Century

This book analyses India’s trade policy evolution in the last two decades in
the broad context of trends and patterns in global trade and, in particular, with
reference to the emergence of global value chains (GVCs).
Through an in-depth analysis of its trade policy evolution in the 2000s, the
author explains India’s limited share of global merchandise trade, especially
manufacturing trade and relatively low GVC integration. The book discusses
India’s trade policy, pattern and global trade participation not just in the
comparative context of China as is true of most analyses relating to the Indian
economy, economic reforms and trade liberalization in India but also in the
context of regional economies like Vietnam, Thailand, Malaysia, Bangladesh and
other emerging market economies (EMEs) that have successfully integrated with
GVCs/RVCs (regional value chains) in the period under reference. Progress and
nature of India’s value chain participation relative to other economies has also
been evaluated in this context. The book further examines policy developments
with respect to traditional trade measures like tariffs and export schemes, trade
and GVC related policies in special economic zones (SEZs), as well as GVC-
facilitating policy instruments such as regional/free trading agreements (RTAs/
FTAs) and investment treaties. Three sectoral case studies – automobiles, textiles
and apparel and electronics – are presented to examine India’s participation in
these dynamic GVC intensive sectors.
An important study of one of the fastest growing economies in the world for
almost two decades, this book will be of substantial interest to academics and
policymakers in the fields of Economics, International Economics, Foreign Policy,
International Economic Relations, Economic Diplomacy, India-Southeast/East
Asia economic relations.

Amita Batra is Professor of Economics at the Centre for South Asian Studies,
School of International Studies, Jawaharlal Nehru University, India. Her previous
publications include Regional Economic Integration in South Asia: Trapped in
Conflict? (2013), also published by Routledge.
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Amita Batra
India’s Trade Policy in
the 21st Century

Amita Batra
First published 2022
by Routledge
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© 2022 Amita Batra
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without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record has been requested for this book
ISBN: 978-0-367-75223-1 (hbk)
ISBN: 978-0-367-75547-8 (pbk)
ISBN: 978-1-003-16290-2 (ebk)
DOI: 10.4324/9781003162902
Typeset in Times
by Deanta Global Publishing Services, Chennai, India
In memory of my mother Phul Batra and her boundless love for
which I am eternally grateful.
Contents

Illustrations viii
Preface ix

1 Introduction 1

2 Going back: Tracing the history of trade policy reform in

India: 1978–1990s 9

3 The 2000s: Global trade shifts: rise of GVC-led trade 28

4 The 2000s: India in global trade 49

5 Situating India’s trade policy in the 2000s 77

6 GVC-specific elements in India’s trade policy 112

7 GVC restructuring and India’s trade policy imperatives 134

8 Conclusions and reform priorities 156

References 167
Index 177
Illustrations

Tables
2.1 Comparative trade (%) and tariff (%) profiles in 2000 14
2.2 Simple average tariff: sector-wise 15
2.3 Tariffs by products: average import weighted rates (%): 1991–1998 16
2.4 Average unweighted tariffs by stage of processing 16
2.5 Types of NTBs imposed on India’s imports:1996–1997 to 2000–2001 19
3.1 Variation in trade intensity of select GVC dynamic sectors 35
4.1 Asian countries in top-ten leading exporters/importers in world
merchandise trade: 2018 50
4.2 India’s trade to GDP ratio in comparison with select developing
countries 51
4.3 Net trade in goods (BoP, Current US$) 52
4.4 External balance on goods and services (% of GDP) 52
4.5 India: trade in ‘True Intermediate’ products 59
4.6 China: ‘True Intermediate’ goods exports in the auto sector 59
4.7 Commodities that have entered India’s top-50 exports for the first
time in 2018 in the period 2000–2018 60
4.8 GVC participation index, 2015–2016 (% share in total gross exports) 62
4.9A Backward integration: intensity of foreign value added in gross
exports: all manufactures and GVC dynamic sectors 65
4.9B Backward integration: sector-specific relative FVA intensity in
gross exports 67
4.10 India’s forward linkages: all manufactures and three dynamic sectors 69
4.11 India’s forward linkages with ASEAN: four-dimensional analysis 71
5.1 Progressive reduction in peak customs duty, 2000–2010 80
5.2A India’s tariff structure:2010/2011–2020/2021 81
5.2B Distribution of India’s MFN tariff rates (% of tariff lines) 81
5.3 Number of preferential lines in India’s FTAs 97
6.1 India’s FTAs: depth and coverage: comparative perspective 119
6.2 ASEAN–India FTA: depth and coverage: comparative perspective 122
6.3 WTO plus policy area coverage in India–ASEAN FTA 122
6.4 FDI equity inflows in India: top-ten investing countries (US$ million) 130
Preface

Trade policy in the present times is no longer only about tariffs and quotas.
Traditional trade of final goods produced by one country and consumed by another
is only a modest proportion of global trade. A major proportion of global trade
happens in the form of the movement of commodities in production networks that
are geographically dispersed. The increasing complexity of production networks,
also called global value chains, in the 21st century has necessitated that trade
policy evolve beyond traditional trade instruments to new age trade measures that
facilitate the movement of parts and components across multiple borders. While
most lead trading nations in the world, as well as many developing economies,
have undertaken domestic trade reforms to align with the evolving global trade
context, India has been slow to adapt. This book is an attempt to highlight the
limitations of India’s trade policy as it has evolved in the past two decades and
thereby help identify and prioritise necessary reforms.
Coincidentally, trade policy issues that have emerged at the forefront in the
recent past, such as preferential trade agreements, global value chains and deep
regional economic integration processes, have been my areas of research and inter-
est for more than a decade now. I have been fortunate to both present and exchange
ideas on these subjects with some of the best experts in the country, in the region
and around the world. I thank my colleagues and friends who have contributed
to shaping my ideas on these issues. My views on the subject have also been for-
mulated in the course of my occasional writings in the Business Standard and the
feedback that I have received in response to my columns over the last three years.
My biggest motivation as an academic and teacher in writing this book and
highlighting the significance of new age trade instruments in global trade evolu-
tion and India’s trade policy context is to underscore the necessity of teaching
and formulating courses around these issues at the undergraduate- and graduate-
level teaching in India. It is my fervent wish and hope that the book draws more
and more younger minds to undertake research in an area that remains under-
researched in the Indian context.
Finally, following the dictum of ‘never waste a crisis’, I have tried to put to
good use this time of home isolation during the pandemic to write this volume. I
hope it will be useful and of interest to a wide audience of policymakers, students
and teachers.
1 Introduction

In the 21st century, global trade contours have undergone a rapid transformation.
In magnitude, there has been an over threefold increase in global trade and the
rate of growth of trade has, almost throughout this period, exceeded the rate of
growth of GDP. In terms of composition, global trade has been predominantly
trade in goods, and within that, it is the trade in manufactured goods that has been
in the lead over these two decades. Underlying the spectacular growth of manu-
factured goods trade has been the phenomenon of global value chains (GVCs),
wherein different stages of production have been located across different coun-
tries. Facilitating GVCs and the movement of goods across national borders has
been the critical role played by 21st-century trade instruments. As the multilateral
trade system at the World Trade Organisation (WTO) entered the irresolute phase
of protracted Doha Development Agenda (DDA) negotiations, alternative trade
formulations were designed to serve GVC-based trade. The most important devel-
opment in this context has been the evolution of preferential trading agreements
(PTAs) from simple tariff liberalisation commitments to including provisions on
trade and investment liberalisation that are both beyond and deeper than under
the WTO.
India’s trade policy in the 21st century appears to be at variance with these
global trade developments. While trade policy liberalisation in India was initi-
ated three decades ago, there is as yet no evolution evident beyond rationalisation
and extension of traditional trade instruments such as tariffs and export incentive
schemes. Necessitated by the balance of payments crisis at the turn of the 1980s,
trade policy reforms, substantive as they were, essentially removed the constraints
imposed by an inward-looking autarkic growth model followed by India since
independence. The focus of trade policy throughout the 1990s remained on tariff
reduction-peak and average MFN, elimination of quantitative controls and the
transition to a market-based exchange rate system. In the 2000s, although the
objective of export enhancement gained primacy, there has been no concrete
policy design towards participation in global value chains as a means of aligning
India’s export structure with global trends and patterns.
Over the last two decades, even though there has been an increase in the sali-
ence of trade in India’s growth process, in a comparative global and developing
country context, India’s trade participation remains marginal. At the end of the

DOI: 10.4324/9781003162902-1
2 Introduction
two decades of the 2000s, the share of total trade to GDP in India is well over 40%.
However, merchandise trade, the globally predominant trade component, was a
relatively smaller share of around 30% of India’s GDP in 2018. In comparison,
merchandise trade as a share of GDP for China was over 60% in the early years of
the first decade in this century, and even after registering a decline in the second
decade, it stands at 34% in 2018, which is higher than that for India. The share of
merchandise trade in GDP is similarly higher in other Southeast Asian economies
like Indonesia (35%) and Malaysia (over 100%). In the case of Mexico, an emerg-
ing market economy, merchandise trade as a share of GDP was at 76% in 2018,
having registered a consistent increase over the previous two decades.
Globally, India’s share in merchandise trade remains small. India is not
among the top ten exporters or importers in the world merchandise trade. This
is disappointing, given the fact that global merchandise trade is led by devel-
oping countries, and in 2018, four Asian countries contributing over a fifth of
global merchandise trade were among the top ten trading nations of the world in
this category. Having barely crossed the 1% mark only in 2008, India’s share of
global merchandise exports has remained at less than 2% in the last decade. On
the import front, similarly, India’s share is a little over 2% of world merchandise
imports, having increased from less than 1% in the first decade. In contrast, China
has, over the same period, experienced a consistent increase in its merchandise
trade and accounts for well over 10% of global merchandise exports and imports.
India’s peripheral presence in global trade is even more obvious when trends
in manufactured goods trade and, within that, trade in intermediate goods are
observed. Trade in manufactures, which is almost 70% of global merchandise
trade and has registered the maximum average annual change over the last two
decades, is led by developing countries with a share of around 33% in 2018, hav-
ing increased from 25% in 2000. Seven of the top ten exporters and importers
in this category are also developing countries. India is not among the top ten
exporters that together contribute over 80% of global exports of manufactures. As
the ninth-largest importer, India’s share has been small, less than 2% in the last
decade. In comparison, China has a share of 18% and 9% in global exports and
imports of manufactures, respectively.
Trade in intermediates, which is the measurable component of global value
chain trade, accounts for almost half of global goods trade and the relative impor-
tance of this category vis-à-vis other processing stages within global trade has
remained fairly stable over the last two decades. The trend is a confirmation of
the continued dominance of value chain trade in global trade in the 21st century.
India’s trade, however, is led by consumer goods, with intermediates following
in the second place and with increasing difference in the shares of the two cat-
egories in India’s total exports over the last decade. This is in contrast with the
trend in global intermediate goods trade which has moved in favour of developing
countries. As against the developing country average of around 41%, the share of
intermediate goods in India’s total exports has been around 33%. India’s global
share of intermediate goods exports is around 2%, in contrast with China’s 13%.
China leads global intermediate goods trade, and hence value chain trade, as the
 Introduction 3
largest single country exporter and importer. This is clearly indicative of India’s
relatively deficient participation in the predominant global trade mechanism of
value chain trade.
Comparator developing countries, in particular in East/Southeast Asia, have
been active participants in global value chains. China, as indicated above, has
been in the lead, emerging as the most attractive destination as large multinational
corporations from developed economies found it cost-effective to locate produc-
tion in countries with abundant, cheap labour and close to large markets. Other
developing countries too, as host economies to these MNC investments, benefit-
ted in this process as they acquired manufacturing specialisation in the off-shored
production stages over a much shorter period of time. They did not, as a conse-
quence, need to go through decades-long learning process to build complete sup-
ply chains domestically as, for example, Korea did successfully in the 1970s, but
that India could not accomplish till the mid-1980s. “Factory Asia” centred around
China was a key outcome of this process of production fragmentation. Central
to this process of regional value chains in Asia as also global value chains has
been a conducive trade policy in the host economies. Widespread unilateral tariff
liberalisation and the creation of enabling investment and business environment
have been crucial facilitative factors in value chain participation for developing
economies. In addition to trade policies at the national level, these countries have
also undertaken coordinated efforts with other like-minded nations to design new
age trade and investment provisions in PTAs, which have been critical to GVC
intensification in the 21st century.
China and ASEAN countries, for example, designed their trade and tariff
policies with a conscious aim of facilitating GVC trade. Within the overall trade
policy, China followed a differential and favourable tariff structure for imports
of parts and components/intermediates, in particular, in the automobiles and
electronics sector in the late 1990s and early 2000s. China’s accession to the
WTO in 2001 provided the underlying confidence to investors in terms of trade
transparency and adherence to trade rules. The facilitative trade policy coupled
with flexible foreign direct investment (FDI) policies, particularly in sector-
specific export processing zones (EPZs), assisted MNCs and their tier-1 sup-
pliers to locate their production segments in China in trade dynamic sectors.
As a consequence, a network of dense industrial clusters was established in the
country, which enabled China to be the foremost participant in processing trade
or what is also referred to as triangular trade. This involved China importing
high-value parts and components/intermediates mainly from East Asia, process-
ing and assembling these into final products, re-exporting back to the East Asian
economies or exporting to the United States and European Union. Large-scale
involvement of small and medium enterprises (SMEs) and policies that allowed
utilisation of input-output linkages and technology spillovers beyond the tar-
geted industries helped China evolve as a global manufacturing hub and, hence,
as a major trade partner of almost all economies of the world in the first decade
of the 2000s itself, displacing major global trading economies like Germany and
the United States.
4 Introduction
ASEAN economies of Thailand and Malaysia, as also other emerging market
economies such as Mexico in North America and Turkey in Europe, have been
among other leading beneficiaries of their GVC-oriented trade strategies. These
economies have, in addition, utilised both their proximity to regional value chain
hubs as well as regional trade cooperation arrangements and trade agreements to
integrate with global and regional value chains in trade dynamic sectors. Vietnam,
a late developer that acceded to the WTO only in 2007, and smaller Central and
Eastern European economies, like Hungary, Poland and the Czech Republic, that
acceded to the European Union (EU) in 2004, have all actively integrated with
global and regional value chains to a much larger extent. As a result, they show
significantly higher rates of growth and shares in trade dynamic sectors. Vietnam
and Mexico have also demonstrated an accelerated pace of FTA participation in
the last decade.
India’s GVC participation has not just been lower in comparison but is also
observed to have declined further in the second decade of the 2000s. India’s trade
policy has not been attuned to the changing global context. Unlike other emerging
market economies that have made an aggressive push for participation in regional
trade agreements, India continues to move cautiously in negotiating free trade
agreements (FTAs). While at the end of the past decade almost half of the world
trade was happening under some or the other FTA, India chose to withdraw from
the regional comprehensive economic partnership (RCEP) agreement in the final
round of negotiations and after being a part of the negotiations for seven years.
Significantly, while globally PTAs are increasingly aiming at deeper integration,
India’s FTAs are limited to shallow integration provisions. Even for that, India
adopts a defensive approach and seeks delayed and differentiated tariff liberalisa-
tion schedules in addition to temporary safeguard measures against import surges.
As a consequence of India’s approach, which is at variance with other participants,
India’s FTA negotiations have invariably been prolonged and difficult. In contrast
with other emerging market economies that have viewed, designed and utilised
FTAs as a means to undertaking reforms towards domestic trade liberalisation,
India has allowed its protectionist trade policy with higher tariffs in the manufac-
turing sector, to be the guiding factor for its preferential trade negotiations. Unlike
India, where utilisation has been low for most of its FTAs, other Asian countries
like Korea and Vietnam provide FTA-supportive trade assistance programmes
and daily consultations and organise workshops, especially for MSMEs, to ensure
high FTA utilisation, trade benefits and enhanced GVC integration.
India’s inability to evolve its trade policy in accordance with global trade
developments has also been evident when, in the last decade, the opportunity to
integrate with GVCs increased on account of trade tensions between the United
States and China. Prior to the trade war too, developments like the gradual loss
of cost competitiveness of China and the global financial crisis had induced large
MNCs to relocate GVCs and associated investments in other emerging markets.
Given the proximity to the Asian regional GVC hub, India, with its economic
potential, large market and abundance of a relatively younger workforce, should
have been a natural choice in this GVC relocation process. However, it has been
 Introduction 5
Southeast Asian economies like Vietnam and Cambodia, as well as Bangladesh
in South Asia, that have been beneficiaries of the evolving GVC process in the
recent past. India’s gains have been insignificant. Now, as the pandemic creates
fresh opportunities for GVC relocation and shifts, it becomes imperative for India
to evolve a context-appropriate trade policy.
Therefore, in this context of global trade evolution, its predominant propel-
lant mechanism of global value chains and new age trade instruments, this book
undertakes an analysis of the extent to which India’s trade policy in the 21st cen-
tury has remained alienated from these developments. Based on this analysis, the
book identifies trade policy imperatives that are vital to India’s alignment with
global trade patterns as also to enhancing its position in the emerging global and
regional trade context. The analysis in the book is focused on merchandise/goods
trade.
The analysis of India’s trade policy evolution in the 21st century is undertaken
with respect to both traditional trade measures such as tariffs, export incentive
schemes and import controls, as well as new age trade instruments like prefer-
ential trade agreements and investment treaties. Trends and patterns of India’s
trade over the last two decades are examined for the extent to which they are in
consonance or at variance with global trade trends and, in particular, with the pre-
dominant global trend of integration with global value chains. At relevant points,
the contrasting experience of comparator developing countries is presented to
underscore the variation in India’s trade trends as well as trade policy design and
evolution.
The analysis in the book is undertaken with a special focus on three GVC
dynamic sectors: textiles and apparel, electronics and automobiles. For each of
these GVC dynamic sectors, a detailed account of India’s sector-specific trade
policies is presented alongside the contrasting experience of a lead developing
country’s trade and GVC participation in that sector. The comparative perspec-
tive is used to provide specific insights on India’s sector-specific differential trade
trajectory and policy limitations.
A brief account of the three regional hubs of GVCs - North America, Europe
and Asia - is also included in this book, to bring forth the distinctive characteris-
tics of GVC evolution in each hub, as well as the linkages among these hubs, as
they have evolved over the last two decades. Highlighting the missed opportuni-
ties that have arisen over time with global trade and GVC evolution, the book
proceeds to delineate specific trade policy imperatives for India in the current and
emerging global and regional context. The book is organised into eight chapters,
including this introduction.
The next chapter provides a background overview of the history of trade
reforms in India. Starting with policy measures aimed at export promotion and
easing import controls for capital goods in the late 1970s, the chapter proceeds
to give a detailed account of trade liberalisation policies undertaken in the 1990s
as part of the systemic economic reforms in the wake of the balance of pay-
ment (BoP) crisis in India. The focus of the chapter is on traditional trade instru-
ments such as tariffs, quantitative restrictions and export incentives. Successive
6 Introduction
liberalisation of tariffs, rationalisation of tariff structure and gradual phasing out
of quantitative restrictions in the 1990s, unilaterally and under multilateral com-
mitments, are discussed in this chapter. Given the role of special economic zones
(SEZs) and EPZs in successfully attracting export-oriented FDI in several devel-
oping countries, a brief review of the EPZs scheme and FDI liberalisation policy
in India is also presented in the chapter. A more detailed and critical assessment
of EPZs in India is undertaken in Chapter 5. Other aspects of India’s trade policy
in the 1990s, such as its multilateral commitments under the Uruguay Round and
participation in preferential trade arrangements/agreements, are also included in
the chapter.
Chapter 3 presents an analysis of global trade as it has evolved over the two
decades of the 21st century. Trends and patterns in global trade relating to mag-
nitude and rate of growth, increased participation of developing countries, South-
South trade and relevance of intra-regional trade have been discussed in detail
in the first part of the chapter. The analysis highlights the importance of trade in
manufactured and intermediate goods, trade among East Asian economies and the
rise of China as the predominant trade economy in the world. Sector-wise trends
within manufactured goods trade are analysed to underscore the importance of
production fragmentation and global value chain–led trade. The second part of
the chapter presents major explanations advanced in the literature to account for
the observed slowdown in global trade since 2012. Both cyclical and structural
causes have been discussed. This includes sluggish recovery in demand, supply
chain consolidation, growing tendency towards protectionism and other factors.
The significance of the evolving character of GVC activity and the recent Chinese
inward economic orientation for trade slowdown in the second decade has also
been brought out in the discussion. This is followed by a brief description of
the regional concentration of global trade and networked production in the three
regional GVC hubs of North America, Europe and East Asia. The last section of
the chapter presents an overview of the evolution of global value chains in the
three trade dynamic sectors: electronics, motor vehicles/automotives and textiles
and apparel.
The focus of Chapter 4 is on India’s global trade integration over the last two
decades and, more specifically, India’s integration with the predominant global
trade mechanism of GVCs. Following a brief overview of India’s participation
in the global goods trade, the chapter proceeds to undertake a detailed analysis
of India’s global value chain integration. The analysis is undertaken in two parts.
The first part of our analysis examines India’s participation in intermediate goods
trade at the global and regional levels. The second part examines India’s integra-
tion with global value chains in manufacturing as a whole as well as in three glob-
ally GVC dynamic sectors - textiles and apparel (T&A hereafter), automotives/
motor vehicles and electronics. The choice of the three sectors is based on their
global trade and GVC dynamism, as well as their relevance to the Indian context.
In each of these sectors, and for manufacturing as a whole, a detailed empiri-
cal analysis of India’s participation in global value chains (GVCs) is undertaken
in terms of both backward and forward integration. A comparative analysis is
 Introduction 7
undertaken, where appropriate, with Asian economies and some select emerg-
ing market economies. India’s forward GVC linkages with ASEAN are analysed
separately, keeping in view the fact that it is the central core of the regional GVC
hub, is geographically proximate and that India has an FTA with ASEAN.
Trade trends are analysed using the latest international trade data culled from
various issues of Key Statistics and Trends in International Trade (UNCTAD)
and World Trade Statistics (WTO). Trends of intermediate goods trade have been
analysed following the Sturgeon and Memedovic (2010) classification of “true
intermediates” in the three focus sectors and extending it to 2018 for India. To
the best of the author’s knowledge and information, this has not been attempted
prior to the analysis in this book. Analysis of GVC participation, forward and
backward integration, is undertaken using the 2018 version of the OECD-WTO
Trade-in-Value-Added (TiVA) database, which extends from 2005 to 2015 (2016
for some countries).
The following two chapters discuss India’s trade policy as it has evolved in the
2000s. The focus in Chapter 5 is on a critical review of policy measures under-
taken in the 2000s with respect to traditional trade instruments such as tariffs,
quantitative restrictions, export incentive schemes and exchange rate policy.
Trade facilitation measures that gained significance in the second decade, particu-
larly after India signed the WTO Trade Facilitation Agreement (TFA) in 2015, are
also highlighted in the chapter. India’s participation in the multilateral trade body,
the WTO, is discussed with reference to issues of interest to developing countries
under the Doha Development Agenda. The chapter also includes a brief discus-
sion of India’s policy of small-scale industry (SSI) reservation. While outside the
domain of trade policy, SSI reservation is discussed for its impact on India’s trade
competitiveness, specifically in the globally trade dynamic sectors that are also
the focus of our analysis in the book. A brief comparison of the SEZ policy in
India in the 2000s as against the successful SEZ policy and its role in Southeast/
East Asian economies, including in China’s export growth, is also included in
the chapter. The chapter includes a brief account of India’s trade policy develop-
ments in each of the three focus sectors - electronics, automotive/automobiles/
motor vehicles and textiles and clothing/apparel - highlighting the shortcomings
that may have impacted India’s GVC integration and export market share in these
sectors. In each case, a successful developing country experience in the respective
sector is presented for the purpose of comparison and policy insights.
Chapter 6 is exclusively focused on policy developments in India in the 21st
century, in the context of GVC facilitative trade instruments such as preferential
trade agreements and investment treaties. A critical evaluation of the extent and
nature of tariff liberalisation and preferential access, rules of origin and prefer-
ence utilisation in India’s FTAs is undertaken in a comparative, best-practices
framework. This is followed by an analysis of depth and coverage of preferential
trade agreements signed by India in the 2000s and a detailed review of India’s
FTA with ASEAN. India’s comprehensive economic partnership agreements with
Japan, Korea, Malaysia and Singapore, as well as the early harvest programme
with Thailand, are discussed in the chapter. Given the relevance of RCEP in
8 Introduction
furthering deeper economic integration in ‘Factory Asia’, a comment on India’s
withdrawal from the mega-regional trade agreement is included in the chapter.
The final section of the chapter presents a description and assessment of India’s
model bilateral investment treaty that was introduced in 2016.
Chapter 7 presents a review of the multiple dimensions of the evolution of the
global trade context and global value chains over the last decade. These include
China’s inward economic orientation and loss of cost competitiveness over the
last few years and the consolidation and restructuring of global value chains. The
chapter discusses alternative strategies of global value chain restructuring and
diversification as these are evolving and the consequences of this process in terms
of an expansion of opportunities for emerging markets other than China to inte-
grate with GVCs. This is followed by a review of the emerging trends and availa-
ble evidence of GVC shifts and restructuring. Emerging markets that have gained
in terms of increased GVC participation and exports market shares are identified.
India’s placement and gains/losses in this process are highlighted. Based on this
analysis, the last section of the chapter delineates a set of trade policy imperatives
for India to develop its potential as an attractive alternative location in the GVC
diversification process, especially in the post-pandemic period.
The book concludes with Chapter 8, reflecting on the main issues that emerge
from the discussion in the preceding chapters, followed by recommendations for
trade policy measures and design as they need to be prioritised in India’s trade
policy in the immediate future.
2 Going back
Tracing the history of trade policy reform in
India: 1978–1990s

The pre-1991 trade policy reforms, the Balance of Payments

(BoP) crisis and the Structural Adjustment Programme
The process of trade liberalisation in India was initiated in the late 1970s as it was
realised by both industry and policymakers that the thus far autarkic model of
growth had not served India well. Restrictive and protectionist trade policies had
led to technologically obsolete, high-cost and inefficient Indian industry. In an
attempt to enhance growth and industrial competitiveness, an expert committee,
under the chairmanship of P.C. Alexander, was set up in 1978 to examine export
policies and procedures. The committee recommended simplification of import
licensing procedures and a shift away from ‘control’ towards ‘development’ as
the desirable objective for the Indian economy. Measures towards liberalisation
of essential capital goods and certain raw material imports not available indig-
enously followed the report of the expert committee.
In the following decade, in 1985, a committee on trade policies chaired by
Dr. Abid Hussain was set up. The committee in its report argued for reduction
in effective protection and recommended that trade policies be announced for a
longer period to provide a more stable policy framework. Prior to 1985–1986,
trade policy was announced at the beginning of the financial year for a period of
six months or one year. In 1985–1986, trade policy was announced for a three-
year period, from April 1985 to March 1988. On its expiry, the new policy was
announced for the period April 1988–March 1991. The trade policy announced in
1992 laid out the roadmap for large-scale trade policy reforms in India over the
next five years. The trade policy of 1997 further consolidated the reform process.
Broadly, trade liberalisation measures undertaken in the late 1970s and 1980s
included the following.1

·· A large number of items were placed under free licensing

·· These included spare parts of machinery, watch parts, polynose and vis-
cose fibres, etc.
·· Gradual liberalisation of import licences
·· value limits were enhanced in the case of small-scale sectors

DOI: 10.4324/9781003162902-2