Though Indian trade policy was designed to avoid extremes and pursue a middle path, in practice it often tended to be more inward-looking than outward looking, i.e. more restrictive than free.
As a result, our exports failed to acquire the needed competitive edge in international markets, and our domestic production could not gain import-competitiveness.
The domestic suppliers were provided with sheltered markets where they could sell high-cost and poor-quality products and where they had no incentive to improve productive efficiency or adjust to changing consumer tastes. This trend was further strengthened by restrictive domestic policies.
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Faced with the situation where domestic producers could not withstand competition from abroad, imports had to be subjected to all types of restrictions like the use of duties, quotas, licensing, outright bans, imports through official channels and so on.
Our inability to earn adequate foreign exchange compelled us to go in for “foreign assistance” (which was mainly in the form of loans), restrictions on the use of foreign exchange (the so-called exchange control measures) and restricting imports to only the “essential” items.
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To tide over the problem of perpetual scarcity of foreign exchange and insufficient export earnings, we also pursued a vigorous (though largely unsuccessful) policy of import substitution.
It may be added here that our poor export earnings were not solely the result of our productive inefficiency and high-cost products.
The official trade policy also contributed its share to this state of affairs. While pledging an. all-out support for promoting exports, the authorities stuck to a highly obstructive export policy which, to a certain extent, continues to this day. These obstructions included, amongst others, expensive and time consuming procedures and paper work.