India's Trade Policy: The Impact on Growth, Balance of Payments and Current Account Deficit

Abstract

The Indian economy has been experiencing a major transformation since 1990’s in the wake of unilateral economic reforms initiated since 1991 and the reorientation of the economy in accordance with the rules and regulations within the multilateral framework of GATT/WTO. Accordingly, the globalization of production process, market for goods as well as financial markets has been initiated, though slowly. This has generated debate on the linkage between trade policy and economic growth, in addition to other variables, the balance of payments and current account deficits. In this paper an effort has been made to study the impact of trade policy on India’s economic growth, balance of payments and current account deficit. The evidence suggests that the trade liberalization policies pursued in India played a positive role in influencing economic growth. Indian exports have been doubled in dollar terms and there is an evidence of export diversification. Imports have been rising continuously and the current account showed a surplus in recent years. Empirical analysis on BOP indicates a statistically significant change during liberalization period. Finally, the open policies seem to have influenced current account balances positively.