Export Performance in the Reform Era: Has India Regained the Lost Ground?

Abstract

During the first four decades of the post-independence era India continued to remain an underperformer in world export markets, relative to both her own potential and the performance of many other developing countries. The consensus of the sizeable literature on this subject is that domestic economic polices, rather than external demand conditions, were largely to be blamed for the poor export performance.¹ The overriding aim of the Indian development policy from the inception was across-the-board import substitution in the context of a foreign trade regime which relied extensively on quantitative restrictions (QRs). Until about the mid-1970s the overall policy trend was towards tightening controls on both foreign trade and domestic industry. The pull of resources into import-substitution industries by the high level of protection, plus overvaluation of the real exchange rate resulting from upwards shift in demand for imports and a rate of domestic inflation above that of trading partners, discouraged production for export. Also, the inflexibilities created by the pervasive controls on domestic manufacturing handicapped the ability of firms to penetrate export markets.