Trade and investment policy reforms
Topic: The 1991 Crisis and LPG Reforms: An Appraisal · NCERT: Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"
Meaning
Trade and investment policy reforms were the 1991 changes that opened India to world trade and foreign money. They are one of the five areas of liberalisation. Before 1991, India protected its young "infant" industries with high import taxes and quantity limits. Over time, this protection made Indian firms less efficient and slowed manufacturing.
The reforms did four main things:
- They removed quantitative restrictions (QRs), which are limits on how much of a good can be imported or exported.
- They cut tariffs (taxes on imports).
- They ended import licensing, except for hazardous and environmentally sensitive industries.
- They removed export duties.
They also welcomed foreign direct investment (FDI). The aim was to make Indian firms more competitive and to bring in foreign capital and technology.
Example
The top tariff rate was above 300% before 1991. It fell to 150% in 1991-92 and to about 10% for non-agricultural goods by 2007-08. In 1991, FDI of up to 51% got automatic approval in 34 high-priority industries. In April 2001, India fully removed QRs on manufactured consumer goods and farm products after it lost a US case at the WTO in 1999.
Don't confuse with
- Tariff vs quota: a tariff is a tax that makes imports costlier, but any amount can still come in. A quota (a type of QR) fixes the quantity that can be imported.
- Foreign exchange reforms: these deal with the rupee's value, such as the 1991 devaluation and the later market-determined exchange rate. They do not deal with tariffs, QRs or FDI rules.