Trends in foreign trade of a country are as much a result of the official economic policy pursued by it as that of the structure and developmental level of its economy.
The introduction of a policy of economic liberalisation and globalisation in early 1990s was motivated by the need for a basic shift in our external sector policy which, in turn, needed domestic economic reforms as well.
Consequent to this policy shift, our economy has become more market-oriented and, over time, has gained in competitive strength in international markets.
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It has departed from its earlier preference for import substitution, an opposition to inflow of foreign capital in the form of FDI and portfolio investment, and an indifference to the need for export promotion and “self-reliance” (as opposed to “self-sufficiency”).
Currently, we are eager to attract FDI and compete with other countries for its inflow. Efforts are being made to make Indian economy an even more favoured destination of FDI, and restrictions on its inflow are being progressively relaxed and removed. We are also making a concerted effort in export promotion.
Till recently, we had looked on indifferently as regional trading blocs proliferated. Albeit belatedly, we have now woken to the reality of their being there and the impact which they can have on our competitive strength and therefore, on the volume, composition, direction and terms of trade.
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Currently, market forces play a leading role in the functioning of our economy though, to a large extent, its performance is still hindered by no means inconsiderable remnants of state regulation.
Indian trade is now far more liberalised than ever, with removal of all quantitative restrictions and total reliance on only tariffs. The exchange rate of rupee is fully market determined, though some restrictions are still there on its capital convertibility.
We have bound ourselves to certain trade related measures under the WTO, and we are committed to a regime of free and fair world trade regime.