DISSERTATION ON

INDIAN FOREIGN TRADE UNDER WTO (WORLD TRADE

ORGANIZATION) REGIME

A Report SUBMITTED
IN A PARTIAL FULLFILMENT OF THE REQUIREMENTS

FOR THE DEGREE OF B.COM LLB (HONS.)

Submitted by: Supervised by:

AASTHA SHARMA Prof. Mr. Saurabh Batar

Enrollment no.

TLL1503001

B.COM LLB (HONS.)

TO THE COLLEGE OF LAW AND LEGAL STUDIES

TEERTHANKER MAHAVIR UNIVERSITY, MORADABAD

(SESSION 2019-20)
 CERTIFICATE
It is to certify that the work included in the thesis entitled “Indian
Foreign Trade Under WTO Regime” submitted by AASTHA SHARMA, to
College of law and legal studies TEERTHANKER MAHAVIR UNIVERSITY,
MORADABAD has been carried out under my/our supervision and that
this work has not been submitted in full or part for the award of any
other degree or diploma of this or any other university in India or
abroad.

Mr. Saurabh Batar

Date:

(Assistant Professor)

College Of Law & Legal Studies

 ACKNOWLEDGEMENT

My endeavor shall be incomplete without the acknowledgement of my

learned guide who have helped me in carrying out this study, I would
like to record my feelings of heartiest gratitude and indebtedness to
Prof. Saurabh Batar .With the enthusiasm, inspiration,encouragement
and great efforts to explain things clearly and simple, he made this
journey a great learning opportunity.

I am greatful to Dr. Radhey Shyam Jha, HEAD OF THE DEPARTMENT of

COLLEGE LAW AND LEGAL STUDIES for his immense interest, judicious
guidance and encouragement throughout this work which help in
completing the work of thesis in a systematic manner.

I duly acknowledge and thank to Prof. Amit Verma, Chief Proctor of

COLLEGE OF LAW AND LEGAL STUDIES for the encouragement,
guidance and providing me necessary facilities for conducting this
research work.

At the end I bow my head in reverence to Almighty God, for providing

me with this opportunity to work with intelligence and enabling me to
research far beyond my own, restricted ambit of thought and action.

Date: AASTHA SHARMA

 CONTENTS
CHAPTER PARTICULARS PAGE
NO.
1 Introduction
1.1 Historical background
1.2 Importance of the study
1.3 Objectives and plans of the study
1.4 Review of Literature
1.4A Study focusing on Impact of foreign trade policy
reforms during post liberalization period
2 Database and research methodology
2.1 Database of study
2.2 Period of study
2.3 Sources of data
2.4 Statistical tool applied
2.5 Hypotheses of study

2.6 LIMITATIONS OF THE STUDY

3 DIRECTION OF INDIAN MERCHANDISED EXPORTS
AND IMPORTS DURINGTHE POST-WTO PERIOD
4 RELATIONSHIP BETWEEN EXPORTS, ECONOMIC
GROWTH AND TRADE OPENNESS IN INDIA: AN
EMPIRICAL ANALYSIS
4.1 Export LED Growth hypotheses: empirical
evidence
5 PERFORMANCE OF INDIAN FOREIGN TRADE
UNDER
PRE- AND POST-WTO PERIODS
5.1 Exports, Import and balance of trade
 5.2 Official reserve account; Gold Reserve; Forex
Reserve; IMF Loan
6 Summary, Conclusions and Recommendations
6.1 Objectives of the study
6.2 Database and research methodology
6.3 Hypotheses of the study
6.4 Major findings of the study
6.5 Testing of hypotheses
6.6 Conclusion and Recommendations
6.7 Limitations of the study
6.8 Scope of further research
Bibliography
Annexure-I

LIST OF ABBREVIATIONS
ADB Asian Development Bank

AEZ Agro Export Zones

ASEAN Association of South-East Asian

Nation

BOP Balance of Payments

CAGR Compound Annual Growth Rate

CEE Central and Eastern European Countries

CET Constant Elasticity of Transformation

CMIE Center for Monitoring Indian Economy

EE Eastern Europe

EFTA European Free Trade Agreement

ELG Export-led Growth

EOUs Export Oriented Units

EPIP Export Promotion Industrial Park

ESCAP Economic and Social Commission of Asia and

Pacific

EU European Union

EXIM Exports and Imports

FDI Foreign Direct Investment

FGP Flying Geese Pattern

FTA Free Trade Area

FTA Free Trade Agreement

GATS General Agreement on Trade in Services

GATT General Agreement on Tariffs & Trade

GDP Gross Domestic Product

GLE Growth-led Exports

GNP Gross National Product

GOI Government of India

GSP Generalized System of Preference

ICT Information and Communications

Technology

IMF International Monetary Fund

IPI Industrial Production Index

LACs Latin American Countries

LCDs Least Developed Country

MERCOSUR Common Market for the South

MFA Multi Fiber Agreement

MFN Most Favored Nation

MIS Management Information System

MNCs Multinational Corporations

MTN Multilateral Trade Negotiations

NAFTA North American

NBER National Bureau of Economic Research

NEP New Economic Policy

NICs Newly Industrialized Countries

NTB Non-Tariffs Barriers

NTBs Non-Tariff Barriers

OECD Organization for Economic Cooperation and

Development

OGL Open General License

OPEC Organization of Petroleum Exporting Countries

PTA Preferential Trading Agreement

QRs Quantitative Restrictions

RBI Reserve Bank of India

RTA Regional Trade Agreements

SAARC South Asian Association For Regional Cooperation

SAFTA South Asian Free Trade Area

SAPTA South Asian Preferential Trading Arrangement

SDR Special Drawings Rights

SEZ Special Economic Zone

SSRN Social Science and Research Network

TNCs Transnational Corporations

TO Trade Openness

TPRM Trade policy Review Mechanism

TRIM Trade Related Investment Measures

TRIPS Trade Related Intellectual Property Rights

UAE United Arab Emirates

UK United Kingdom

UNCTAD United Nation Conference on Trade &

Development

USA United State America

VAR Vector Autoregressive

VECM Vector Error Correction Model

WTO World Trade Organization
 CHAPTER-1

INTRODUCTION
The ultimate goal of economic development is to raise the level of living
of the large majority. The main problem of development in today’s
world is how to improve the quality of life. Particularly, in the poor
countries of the world, a better quality of life generally calls for higher
incomes, but it involves much more. It encompass as ends in them
selves, better education, higher standard of health and nutrition, lower
level of poverty, a cleaner environment, more equality of opportunity,
greater individual freedomand a richer cultural life (World
Development Report, 1991).

However, a debate is going on among the economists and the policy

makers, regarding the choice of strategy of development for a country.
According to one school of thought, all countries are dependent on
each other. All the countries must accept the fact that they are part of
world economy. The growth in International business has forged a
network of global linkages around the world that binds all countries,
institutions and individuals-much closer than ever before (Czinkota et
al. 1994). Moreover, it is difficult for a country to survive without trade
with other countries due to the unequal distribution of natural
resources. Large share of basic needs of human beings depend upon
the trade in the contemporary world. Therefore, trade must be
promoted for steady and sustainable economic growth in the world
economy.

Prior to the formation of WTO, India remained untouchable from the

world economy during the first 40 years of independence. It has been
pointed out that long term faith in import substitution policy as a part
of development strategy blocked the flow of technology and
investment due to lukewarm attitude towards the export promotion led
to marginalization of India from the global trade. In view of above
situation, Indian policy makers introduced large scale reforms after
1991.

The Government of India took number of initiatives in the foreign trade

policy like simplification of Import-Export procedure, reduction in
Tariffs and Non-Tariffs barriers, Foreign Currency reforms, Liberal
Credit, setting up of Export Promotion Zones, incentives for the Foreign
Companies and Joint Ventures etc.

According to Porter’s Competitive Advantages Theory, the

following four conditions are important to take the benefit of
competitive advantage, namely,
level of competition,
demanding consumer,
situation of the factor of production,
supporting industries and strategy, rivalry and structure of firm.

1.1 HISTORICAL BACKGROUND

After the Second World War, the Bretton Woods Conference of 1944
succeeded to establish the two International Financial Institutions at
global levelnamely, International Monetary Fund (IMF) and the
International Bank for Reconstruction and Development (World Bank)
for the reconstruction of the global economy. The IMF and World Bank
were set up with a view to promote monetary stability and providing
resources for the post war reconstruction requirements. A third
institution, named– The International Trade Organization (ITO i.e.
specialized agency of United Nations announced by the Havana
Charter) was proposed to be created to settle the disputes among the
trading countries and to promote liberalization of world trade.
However, the effort to set up ITO since 1945, proved abortive in the
hands of the U.S. Congress when the congress failed to ratify the
Havana Charter involving ITO’s formal structure, which was meant to
govern world trade (Singh, M. 2005). Non-establishment of ITO led to
the continuation of GATT but it was replaced by WTO in 1995. It is one
of the most significant body among all the global economic institutions
in the history of trade and economic relations among the members’
countries.

WTO is a Multilateral Trade body, which provides a comprehensive

regulatory framework for the promotion of global trade. It has 159
members on March, 2013. 10 1.2A MOTIVES BEHIND WTO

The main motives for the establishment of WTO are given below:

 To set and enforce rules for international trade;

 To ease the implementation, administration and operations of
MPTA;
 To provide a platform to negotiate and monitor the rules
regarding liberalization of trade;
 To improve transparency and set up the forum for negotiations
for the member countries;
  To make available a framework for applying of the results arising
out of the discussions which took place at Ministerial Conference
level;
 To resolve trade disputes and manage the created understanding
on system and dealings with the settlement of disputes; and
 To oversee the working of TPRM.

India was one of the 23 founder contracting parties to the General

Agreement on Tariffs and Trade (GATT) that was concluded in October
1947. India is also a founder member of WTO and it has taken keen
interest in the deliberations of WTO. India remained the leading voice
of the developing world at various rounds of trade negotiations.

Therefore, Indian government introduced large-scale policy changes to

convert closed economy into open economy by adopting the new
economic policy of Liberalization, Privatization and Globalization (LPG).

Under the compliance of WTO, the Government of India have taken

number of initiatives in the foreign trade policy like simplification of
Import-Export procedure, reduction in Tariffs and Non-Tariffs barriers,
Foreign Currency reforms, Liberal Credit, setting up of Export
Promotion Zones, incentives for the Foreign Companies and Joint
Ventures etc. The detailed analysis of Indian foreign trade policy
reforms is presented in the foregoing discussion.

1.2 IMPORTANCE OF THE STUDY

In order to enhance the efficiency of the international trade and assist
the developing countries to develop their economy, a number of Global
Economic Institutions, namely, GATT/WTO, UNCTAD, IBRD-World Bank,
IMF, SAFTA, NAFTA etc have been formed to carry out multilateral free
trade in a world of multilingual and multi-religious community.

The review of literature has shown the both positive and negative
impact of new world trade policies on world economy in general and
Indian economy in particular. One Common Conclusion of majority of
these studies is that drastic changes have been taken place in the
foreign trade scenario at the global level.

External trade has been recognized as a tool of economic and social

change at global level. There are some countries like Hong Kong,
Singapore, Korea etc. who have succeeded to develop their economies
by promoting trade with the other countries of the World. Foreign
trade has been acknowledged as an engine of growth due to its positive
contributions in the different part of the world.

These changes in the world economy have influenced the foreign trade
of the developing countries in general and India in particular. In view of
the global changes, India has made several changes in its foreign trade
policy from time to time to encourage domestic manufacturers and
exporters by liberalizing trade policies to promote foreign trade.
Number of initiatives has been taken during the post WTO Era as
discussed above.

The main motive behind all these changes in foreign 17 trade policy has
been to achieve higher share in foreign trade by promoting exports and
liberalizing imports required for the growth of the exports. Therefore,
the present study is an attempt to analyze the impact of all these
changes to achieve the said goals as well as its implications for the
Indian economy in general and different sections of the society in
particular. The study will definitely bridge gap in research and will
positively contribute to further strengthening of the foreign trade
policy to face the challenges of World Trade Organization.

1.3 OBJECTIVES AND PLANS OF THE STUDY

OBJECTIVES:
The present study has been planned to analyze the impact of World
Trade Organization on India’s foreign trade. The study is a modest
attempt to achieve the following objectives: To analyze the Indian
Foreign Trade Policy reforms during the Post-WTO period;

 To study the changes in the Commodity Composition of

Indian Exports and
 Imports during the Post-WTO period; To study the changes
in the Direction of Indian Exports and Imports during the
Post-WTO period;
 To study the Relationship between Trade Openness, Exports
and Economic Growth during the Post-WTO period;
 To study the impact of Indian Foreign Trade reforms on
Balance of Trade and Balance of Payments (BOPs) during
the period under study; and
 To suggest suitable recommendations for the policy
makers to take remedial measures for necessary
corrections.

PLANS:
The present study is divided into eight chapters including the present introductory
one. Chapter-I introduces the study with descriptions of the theoretical aspects of
the problem. The major highlights of the foreign trade policy reforms introduced
during the post-WTO period are also presented in this chapter.

It outlines the issues, importance, objectives and plan of the study. The review of
literature has been carried out in Chapter II. Review of literature has been
presented according to the objectives of the study. Research methodology is
taken up in Chapter III, which deals with the period of the 18 study, sources of the
data, statistical tools, hypotheses and the limitations of the study.

Chapter-IV deals with changes in the commodity composition of India’s exports

and imports during the post-WTO period and the direction of Indian Foreign trade
under the study period. Chapter-VI deals with the analysis of the empirical
relationship between economic growth, trade openness and export growth during
the post-WTO period.

The impact of foreign trade policy reforms on BoT and BoPs during the post-WTO
period has been presented in Chapter-VII. Summary, conclusions and
recommendations along with scope of further research have been presented in
Chapter-VIII followed by detailed bibliography and annexures.

1.4 REVIEW OF LITERATURE

The existing empirical literature has been reviewed to find out the research gap in
the area under study. The review is based on both empirical and descriptive
studies. However, majority of studies included in this chapter are empirical in
nature covering the Pre-and Post-WTO period. An attempt has been made to
review the relevant research studies having direct or indirect relation with the
present study. Furthermore review covers both national and international level
studies. The reviewed studies have been categorized according to the objectives
of the present study.
1.4A STUDIES FOCUSING ON THE IMPACT OF FOREIGN TRADE POLICY
REFORMS DURING THE POST-LIBERLIZATION PERIOD
One school of thought favour trade liberalization policy while other opposes it.
Krueger (1998) also recommended the policymakers to adopt pure outward
oriented strategies because trade liberalization enabled a country to achieve a
higher rate of growth. Similarly, Kalirajan, K. (2001) found that trade policy
reforms has contributed positively to Gross Domestic Product (GDP), protect the
interest of consumers, and benefited to the economy as a whole. According to
Thirlwall (2000), trade liberalization and export performance is positively
correlated, however, the outcome depends upon the production and demand
characteristics of the goods produced and exported. Babatunde (2009) used
panel least square estimation technique to determine the impact of real exchange
rate based trade liberalization in promoting the export growth of Sub-Saharan
Africa in the last part of 20th century.

On the other hand, Bhagwati and Srinivasan, (1975) found that the external trade
policy reforms led to negative impact on the India’s economic growth, saving,
research and development (i.e. domestic policies) during the period 1950-70.
Sidhu et al. (2004) covered a period of 20 years i.e. 1980-81 to 1999-2000 and
used time 20 series data to analyze the significant changes in commodity
composition and the direction of Indian merchandise exports and imports. The
study found that foreign trade reforms could not contribute positively to reduce
balance of payments deficit due to the reason that the percentage increase in
exports was less than percentage increase in imports.

Kusi (2002) found that trade liberalization could not produce expected gains to
export performance and clear relationship between trade reforms and improved
export performance was lacking. Pacheco-Lopez (2004) found that trade reforms
of Mexico during the mid 1980s had a significant impact on trade, exports and
imports but the propensity to import has exceeded the propensity to export
which worsened the balance of trade.
 Jenkins (1996) analyzed the impact of trade liberalization on export growth of
Bolivian through three means

(i) removal of bias against exports;

(ii) access to imported inputs; and
(iii) more competitive and stable real effective exchange rate. The study found
that better export performance has been associated with more
competitive and stable real effective exchange rate and trade liberalization
has not had a major direct impact on manufactured exports. In view of the
large number of studies, only the summarized form of review of literature
is presented in table 1.1
Z
TABLE 1.1
The relationship link between export growth and output growth has been studied
widely in the literature.

CHAPTER-2

DATABASE AND RESEARCH METHODOLOGY

Research could be broadly divided into two parts, namely, basic and applied
research. The nature of the research may be descriptive, applied as well as
fundamental research. The present study is analytical in nature. Database and
Research Methodology of the study has been presented in this chapter. The
nature of the data, the period of the study, sources of data and the statistical
tools applied for the analysis of data are covered in this chapter. Furthermore, the
hypotheses have been framed for testing on the basis of the findings of the study
and limitations of the study are also presented.
2.1 DATABASE OF THE STUDY
The data is the most important component of any research to achieve the
objectives of the research. The accuracy of the results of any study depends
mainly on the reliability of data. The nature of the present study is analytical and
is based on the secondary data.

2.2 PERIOD OF THE STUDY

The study covers a comprehensive period of 17 years from 1994-95 to 2010-11.
The period of study has been deliberately selected to analyze the post-WTO
scenario during which drastic policy changes have been introduced by the Indian
government for the compliance of WTO provisions which got birth on 1st January,
1995. However, the data relating to pre-reforms period has also been taken to
compare the pre and post reforms period performance of external sector of India.
To bring uniformity, quarterly data was developed on the basis of monthly data,
as the GDP data were available on quarterly basis only.

2.3 SOURCES OF THE DATA

The data of present study has been collected from the different sources, namely,
Database of Reserve Bank of India, and various Reports published by CMIE. The
data has also been collected with the help of online databases such as SSRN
(Social Science Research Network). 63 For the analysis of commodity composition
of Indian foreign trade, we have taken the principal items of composition of
Indian merchandise exports and imports, which includes, namely, agricultural &
allied products; ores and minerals; leather & manufacturing; chemicals & allied
products; engineering goods; gems & jewellery; handicrafts; petroleum; and
others. The direction of Indian foreign trade include all the imperative
destinations of Indian foreign trade, namely, OECD, OPEC, Eastern Europe and
Developing countries. The compound growth rate has been used for the analysis
of the change in composition of commodity and direction of Indian foreign trade
under the post-WTO period. The annual average growth rate has also been
calculated for the indepth analysis of the changes in structure of Indian foreign
trade.

2.4 STATISTICAL TOOLS APPLIED FOR THE ANALYSIS OF DATA

Research Methodology is a mode to systematically resolve the research problem.
It provides the framework on the basis of which entire research is carried-out.
Therefore, it is very significant that research methodology of a study should be
clear and scientific.

To achieve the objectives of the present research, descriptive statistical

techniques such as percentages and averages have been used. The Compound
Growth Rate has been calculated for the scientific analysis of the study. Advanced
Time Series Analytical Techniques such as Phillips Perron (PP) Test, Johansen Co-
integration Test and Block Exogeneity Wald Test. Eviews, SPSS Package and MS-
Excel software have been used for data analysis. The detail of the statistical tools
selected for the examination of time series data of the present study are as
follows:

 The Compound Growth Rate

The compound growth rate has been calculated to analyze the growth of Indian
foreign trade under the study period. With the help of regression, the correlation
coefficient (r) and the value of t-statistics have been calculated for the reference
period. The Percentage Change Calculator

It is used to calculate percentage changes of exports and imports during the

study period from 1994-95 to 2010-11. For this purpose, we applied the following
formula:

Percentage Growth Rate Change = {[X2-X1]/X1*100}

Here X1= First Value

X2= Second Value

 Balance of Trade Formula

The balance of trade has been calculated by taking the difference of exports
and imports for all the years covered under the study.
 Unit Root Test The time series must be required to be stationary for
feasibility of inference and forecasting. A number of tests are available to
check the stationarity of a time series data. In this study we used the Philips
Perron test to examine the stationarity of the variables under study. For the
application of Unit Root tests, the variables must fulfill two conditions, i.e.
(i) all the variables are stationary at same order; and
(ii) differenced series or the residual series are stationary at level for the
application of Johansen Co-integration Test. PP test is also used to
check the integration order of the variables.

 Johansen Co-integration Test

After checking the stationarity of the variables, we used the Johansen
Cointegration test to examine the Co-integration among the variables
under study. In this test, the null hypothesis that no co-integration exist is
rejected, if there exist, at least, one co-integrating vector, it exhibit a stable
long-run relationship between the variables. For this purpose, trace test
and maximum eigen value tests have been considered.
The hypotheses of Johansen Co-integration test are as follows.
H0: r=0; H1: r=1
 Tests for Granger Causality with VECM We used the Vector Error-
Correction Model (VECM) to examine the direction of long-run and short
run Causality among real exports, real GDP and trade openness and
whether or not the ELG or GLE or both hypotheses are true in case of India.
 The performance of Indian exports under the trade liberalization period has
been examined with the help of the VECM.
The application of this test requires quarterly data. There is a general
consensus among the researchers that the number of 65 observations
should be more than thirty for the application of this test. So accordingly,
quarterly data have been generated from the monthly data. The data used
for this analysis was taken from 1996-97 Q1 to 2008-09 Q4, which
comprises 52 observations.
All the data has been taken from the database of RBI. We have taken three
variables namely, real exports (X), real imports (M) and real GDP (measured
as economic growth) to study the causal association between exports
growth and economic growth. The GDP deflator index is used as price
deflator for all nominal series to deflate the inflationary effects. The
variables under study have been transformed to natural logs denoted as
lnX, lnM and lnGDP.
There are large number of empirical studies that validate the strong
association among exports growth and economic growth having
positive/negative impact. An assessment of the link between exports and
economic growth has got more attention during the era of globalization.
Several studies like Michaely (1977), Balassa (1978), Tyler (1981), Gupta
(1985), Kavoussi (1984), Ram (1985), Sheehey (1990), and Hatemi and
Irandoust (2002) found positive impact of exports on economic growth,
while the others studies like Boltho (1996) and Medina Smith (2001) found
negative or neutral effects and raise some doubts with regard to promoting
exports as a comprehensive development strategy. In the light of this
controversy, an attempt has been made to apply the cointegration test and
VECM to investigate the ELG hypothesis in India during the postWTO
period.
 Block Exogeneity Wald Test The direction between the variables has
been identified by Block Exogeneity Wald Test. The Granger causality test in
VAR framework is known as Block Exogeneity Wald Test. This test is used in
a multivariate context, when we have two variables, we may like to know if
 some of these variables are generated independently of other variables
considered (Badani, 2009).

2.5 HYPOTHESES OF THE STUDY

In the course of our investigation the following hypotheses have been framed to test on
the basis of the findings of the present study:
H1: The composition of Indian Exports and Imports has changed during the postWTO
period;

H2: The direction of Indian Exports and Imports of goods has changed during the post-
WTO period;
H3: The Liberalization of trade policy led to higher volume of exports;
H4: Exports growth is positively related to GDP growth;
H5: The share of merchandised export as ratio of GDP has increased under the study
period; H6: Foreign trade reforms in merchandised exports have succeeded to reduce
trade deficit or balance of trade; and
H7: Foreign trade reforms have a positive impact on the Balance of payments.

2.6 LIMITATIONS OF THE STUDY

Just like any other research project, the present study also has certain limitations, some
of which are listed below:
 The present study is based on secondary data, therefore, it carries all the limitations of a
secondary data based studies;
 The present study could not analyze the impact of export-led economic growth model
on the transfer of technology, level of unemployment, level of competition and
reduction of poverty in India during the post-WTO period which are the key problems
being faced by the Indian economy;
 Moreover, the present study could not differentiate the recession period from the
normal period, which might have affected the results of the study;
 Some advanced statistical tools have been applied for the analysis of data Therefore,
all the limitations of such techniques might have affect on the results of the present
study;
 The study is based on secondary data, therefore, the problems being faced by
exporters and importers are missing in India could not be included in the study; and
 The present study has focused on the merchandised trade, therefore, the contribution
of invisibles trade has not included in the study.

CHAPTER-3
DIRECTION OF INDIAN MERCHANDISED EXPORTS AND IMPORTS
DURINGTHE POST-WTO PERIOD

Under the new trade policy of 1991, India’s foreign trade has undergone a
major transformation in terms of direction of Indian merchandised exports
and imports. The new trade policy has reversed the direction of Indian
foreign trade which had been followed for decades. Before independence,
Indian foreign trade was typical of a colonial and agricultural economy, and
its trade relations were mainly confined to Britain and other
Commonwealth Countries. After independence, India’s exports remained
highly concentrated in OECD countries which continued for a long period
though on a lesser scale. Share of the OECD countries was 66 per cent in
1960-61 which declined to 50 per cent of the total exports in 1970-71 and
thereafter till 2000-2001 it varied in the range of 46 to 55 per cent (Bhat,
2011). It further declined to 41 per cent. In case of EU, the share of exports
was 36 per cent which declined sharply in 1970-71 to 18 per cent. With the
expansion of EU countries it reached to 21 per cent till the end of 2007-08,
U.K., Germany and France were the major export destinations in the 1960-
61 but their share declined over the years and other EU countries, namely,
Belgium, the Netherlands and Italy emerged major destinations from 1980s
onwards (ibid, 2011). In the light of WTO provisions, India adopted a steady
policy to enhance its trade relations with the other countries of the world.
India planned to develop more trade relations with Africa, South America,
and Middle-East Asian Countries with the objective that these countries
would offer huge markets for India’s exports. The present chapter has been
designed to study the significant changes which have taken place in the
direction of Indian foreign trade. For the achievement of this objective, the
analysis has been divided into two sections. The first section deals with the
analysis of direction of India’s export and import of goods with world
economy during the post-WTO period. The analysis of data on India’s
exports and imports with selected major trading partners during the Post-
WTO Period has been discussed in Section-II.

SECTION-I

DYNAMICS OF DIRECTION OF INDIAN FOREIGN TRADE DURING THE POST-

WTO PERIOD
The major destination of Indian exports includes OECD, OPEC, Eastern Europe, Developing
countries and others. The analysis of data on direction of Indian exports reveals that the share
of OECD countries has sharply declined from 58.65 per cent in 1994-95 to 33.30 per cent in
2010-11. The share of OECD countries in Indian Exports has shown a declining trend except the
years of 1997-98, 1998-99 and 2002-03 respectively.
The share of Indian exports to European Union (EU) has also shown a declining trend and its
share declined from 26.70 per cent in 1994-95 to 18.43 per cent in 2010-11. Similarly, the share
of Indian exports to North America and Asia & Oceania has also declined from 20.08 per cent
and 9.22 per cent in 1994-95 to 10.61 per cent and 2.80 per cent in 2010-11, respectively.

However, the share of Indian exports to OPEC countries has shown an upward trend and has
increased from 9.22 in 1994-95 to 21.54 per cent in 2010-11. It is a major change in the
destination pattern of Indian exports during the Post-WTO period. On the other hand, the share
of Eastern Europe in Indian exports has sharply declined from 4.01 per cent in 1994-95 to 1.17
per cent in 2010-11. This development has taken place due to the downfall of Soveit block which
led to the transformation of these countries into market-economy.
 SECTION-II
INDIAN EXPORTS AND IMPORTS WITH SELECTED TRADING PARTNERS
DURING THE POST-WTO PERIOD
The pattern of Indian trade with its major trading partners has undergone gradual changes over
the time. For the analysis purpose, we have selected ten India’s Major Trading Partners, namely,
United Arab Emirates (UAE); China; United States of America (USA); Saudi Arabia; European
Union (EU); Switzerland; Singapore; Australia; Iran; and Hong Kong, (Economic Survey of India,
2010-11).

A SHARE OF INDIAN EXPORTS AND IMPORTS WITH UAE DURING THE POST-
WTO PERIOD
For UAE, India is the largest trading partner. India's major export items to UAE are:
 Petroleum Products,
 Precious Metals,
 Stones, Gems & Jewellery,
 Minerals,
 Food Items (Cereals, Sugar, Fruits & Vegetables, Tea, Meat, and Seafood),
 Textiles (Garments, Apparel, Synthetic fiber, Cotton, Yarn) and
 Engineering & Machinery Products and Chemicals.

India’s major import items from UAE are:

 Petroleum and Petroleum Products,
 Precious Metals,
 Stones, Gems & Jewellery,
 Minerals,
 Chemicals,
 Wood & Wood Products.

Examining India’s foreign trade with UAE, it is apparent that India’s exports to UAE has shown
an increasing trend during the period 1994-95 to 2008-09. On the other hand, India’s imports to
UAE has shown an increasing trend from 1994-95 to 1999-00, but after that as the impact of
‘New Economic Reforms’ spread it suddenly declined from Rs. 10114.9 crore in 1999-00 to Rs.
3010.5 crore in 2000-01.
However, the balance of trade has always been in favour of India from the period 2000-01 to
2008-09. The percentage share of India’s total exports to UAE has increased from 4.81 per cent
in 1994-95 to 13.11 per cent in 2008-09 while the percentage of India’s total imports to UAE has
increased from 5.35 per cent in 1994-95 to 7.71 per cent in 2008-09.
 So the analysis of data clearly reveals that the share of Indian exports to UAE has increased at
higher rate as compared to share of imports from UAE to India which resulted to positive trade
balance of India with UAE during the same period.

SHARE OF INDIAN EXPORTS AND IMPORTS WITH CHINA DURING THE

POST-WTO PERIOD
China is India's Second largest trading partner.
India’s major exports items to China include, namely,
 iron ore;
 cotton;
 organic chemicals;
 copper and precious stones etc.

India’s major imports items from China include namely,

 electrical machinery;
 machinery;
 organic chemicals;
 iron & steel; and steel products

The share of India’s imports from China has been substantially higher as compared with the share of
India’s exports to China. The share of India’s exports to China has shown positive trend but at a slow
pace as compared with the India’s imports from China. The amount of India’s exports to China has been
increased from Rs. 798.2 crore in 1994-95 to Rs. 42661.3 crore in 2008-09. However, the amount of
imports has been increased from Rs. 2388.9 crore in 1994-95 to Rs. 147605.6 crore in 2008-09. As a
result, the balance of trade has always been in favour of China during the period under study. The
percentage share of India’s total exports to China has varied from 0.97 per cent in 1994-95 to 5.07 per
cent in 2008-09 while the percentage of India’s total imports from China has changed from 2.26 per cent
in 1994-95 to 10.74 per cent in 2008-09.

SHARE OF INDIAN EXPORTS AND IMPORTS WITH USA DURING THE POST-WTO
PERIOD
The United States is one of India's largest trading partners.

Major items exported by India to the U.S.A include

 Information Technology Services,

 textiles, machinery,
 ITeS,
 gems and diamonds,
 chemicals,
 iron and steel products,
  Coffee & tea, and
 other edible food products.

On the other hand the

major items imported by India from USA include

 aircraft,
 fertilizers,
 computer hardware,
 scrap metal and
 medical equipment.

The analysis of data relating to India’s trade with U.S.A reveals that India’s exports to U.S.A has
increased during the Post-WTO regime except in the year 2001-02 and 2007-08, Further the imports
from USA have also increased during this period. The percentage share of exports to U.S.A declined from
19.07 per cent in 1994-95 to 11.47 per cent in 2008-09. On the other hand, the percentage share of
India’s imports from U.S.A has also declined from 10.14 percent in 1994-95 to 6.17 per cent in 2008-09.
Thus, the percentage share of imports declined from U.SA is less as compared with the decline in
percentage share of exports to U.SA under the WTO era. However, the balance of trade has always in
favour of India except in the year 2007-08 (This period was relating to global financial crisis that
overwhelms the world economy in the last quarter of 2008 which turned into a global recession in 2009
and resulted in the largest decline in world trade in more than 70 years).

SHARE OF INDIAN EXPORTS AND IMPORTS WITH EUROPEAN UNION DURING

THE POST-WTO PERIOD
EU is another important trade partner of India, accounting for more than 20 per cent of Indian trade and
is a growing global economic power. The picture of India’s foreign trade with EU, during the Post-WTO
period. India’s trade has always been in the favour of EU, as the value of exports remained substantially
lower in contrast to imports over the period under study. The value of India’s exports to EU has
increased from a low level of Rs. 22075.3 crore in 1994-95 to a Rs. 179214.4 crore in 2008-09 while the
value of India’s imports to EU has increased from a low level of Rs. 22338.7 crore in 1994-95 to a Rs.
194434.9 crore in 2008-09.

However, the balance of trade has always been in favour of EU. India’s exports with EU as a percentage
of total trade varied from 26.7 per cent in 1994-95 to 21.32 per cent in 2008- 09. In case of imports, the
percentage share varied from 24.83 per cent in 1994-95 to 14.15 per cent in 2008-09 throughout the
study period.

SHARE OF INDIAN EXPORTS AND IMPORTS WITH SWITZERLAND DURING THE

POST-WTO PERIOD
 Exports to Switzerland show a high volatile scenario. The value of exports to Switzerland remained low
and varied from Rs. 776.8 crore in 1994-95 to as high as of Rs. 3525.3 crore in 2008-09 under the Post-
WTO period. In contrast to the value of exports to Switzerland, the imports remained substantially
higher during the same period. The value of imports was low in the year 1994-95 (about Rs. 2588.2
crore) and high in the year 2008-09 (about Rs. 52703.2 crore).

However, the balance of trade has always been in favour of Switzerland, as the amount of imports
remained much higher as compared to the value of exports. The percentage share of exports to
Switzerland remained less that 1 per cent. On the other side, the percentage share of imports from
Switzerland reflects highly fluctuating trend and varied from about 2 per cent to 7 per cent during the
Post-WTO period.

SHARE OF INDIAN EXPORTS AND IMPORTS WITH SINGAPORE DURING THE

POST-WTO PERIOD
Singapore was the 7th largest trading partner of India in 2008-09. Adoption of new economic policy
and its “Look East” policy have led India to a major expansion in bilateral trade, which grew from USD
2.2 billion in 2001 to US 9-10 billion in 2006 - a 400 per cent growth in a span of five years - and to USD
50 billion by 2010.

Major items of India’s export to Singapore include

 petroleum,
 gemstones,
 jewellery, and
 machinery

while, its imports from Singapore included

 electronic goods,
 organic chemicals and
 metals

The analysis of India’s trade with Singapore during the period from 1994-95 to 2008-09, found that
exports to Singapore have shown a fluctuating trend which varied from Rs. 2418.6 crore in 1994-95 to
Rs. 37756.9 crore in 2008-09. The share of exports to Singapore has varied from 1 per cent to 6 per cent
of the total exports of India during the Post-WTO period. On the contrary, the value of imports to
Singapore increased except in the year 2000-01. The value of imports varied from Rs. 2824.9 crore in
1994-95 to Rs. 34561.4 crore in 2008-09. The percentage share of imports from Singapore remained
substantially low and varied between 2 per cent to 4 per cent.

However, the trade balance remained in favour of Singapore except few exceptions during the post
WTO period.
SHARE OF INDIAN EXPORTS AND IMPORTS WITH AUSTRALIA DURING THE POST-
WTO PERIOD
India’s trade with Australia remained in favour of Australia, as the value of exports remained lower in
contrast to imports during the Post-WTO period. India’s exports to Australia has registered an increasing
trend but at a slow pace. The value of India’s exports to Australia increased from Rs. 1087.8 crore in
1994-95 to Rs. 6576.3 crore in 2008-09. India’s export to Australia as a percentage of total trade comes
to be about less than 2 per cent during the Post-WTO period. On the contrary, the value of imports from
Australia is substantially high in comparison to the value of exports. It varies from a low level of Rs.
2873.5 crore in 1994-95 to 50496.5 crore in 2008-09. The growth rate of imports from Australia has
been found negative in the year 2007-08. India’s imports from Australia as a percentage of total imports
remained less than 4 per cent throughout the study period. However, trade balance has always been in
favour of Australia.

SHARE OF INDIAN EXPORTS AND IMPORTS WITH HONG KONG DURING THE
POST-WTO PERIO
India’s exports to Hong Kong has shown an increasing trend during the period of Post-WTO regime
except 2001-02. On the other hand, imports varied between Rs. 901.2 crore in 1994-95 to Rs. 29732.5
crore in 2008-09. The trade balance has always been in favour of India. This is due to the reason that the
growth of exports to Hong Kong is substantially higher in contrast to its value of imports.

The percentage share of exports to Hong Kong varied about 3 per cent to 7 per cent of the overall trade
of India under the reference period. On the contrary, the percentage share of imports to total trade of
Hong Kong remained less than 2 per cent except in the year 2008-09 during the period under study.

CONCLUSION

The analysis of data in regard to the direction of India’s exports and imports reveals mixed
response to the foreign trade policy changes during the post WTO period. The main purpose of
this analysis was to see whether India has succeeded to fetch new markets for its exports or
increased its share in the World trade.

The study found that the direction of Indian foreign trade has changed during the post WTO
period. For instance, the share of Indian exports to OECD countries has sharply declined during
the post WTO period. The share of India’s exports has also declined in case of European Union,
North America, Asia & Oceania region and Eastern Europe.
 However, the share of Indian exports has increased in case of OPEC countries during the same
period which is as an important development during the post WTO period. Another interesting
finding of the analysis is that the share of developing countries in India’s exports as a group has
also increased during the post WTO period. It implies that the Indian exports have reached to
new areas of international market, as a result of which geographic base has expanded during
the period under study.

The analysis of data has also shown that the direction of Indian imports has also changed during
the period under study. The study reveals that the India’s imports from European Union remain
volatile during this period. The India’s imports from North America and Asia & Oceania have
also declined during this period.

However, the share of Indian imports from OPEC countries (as it happened in case of exports)
has shown an increasing trend during this period. This is another major change in the
destination pattern of Indian imports during the post WTO period. Furthermore, the share of
developing countries in Indian imports has also increased during this period which implies that
the removal of tariffs and nontariffs barriers during the post WTO period has enabled
developing countries to increase their share in trade among themselves.

In regard to the direction of India’s foreign trade with ten major trading partners, the study
reveals that the share of Indian exports has increased at higher rate as compared to imports in
case of UAE which enable India to have a positive trade balance with UAE. The analysis found
that though India’s trade with china has increased but it remained in favour of china. The study
further found that that the percentage share of both India’s exports and imports to USA has
declined during this period, though the balance of trade 125 remained in favour of India except
the year 2007-08.

The share of India’s exports and imports to Saudi Arabia has shown an increasing trend though
some fluctuations have been occurred in case of imports from Saudi Arabia. The study further
found that the share of both exports and imports and percentage of total trade to European
Union has increased but the balance of trade remains in favour of EU countries.

The percentage share of India’s exports to Switzerland has remained fluctuating during the
post-WTO period. However, the share of exports to Singapore has increased during the post
WTO period. Though the imports have also increased as a result of which trade balance
remained in favour of Singapore except few years.

Australia is another partner of India, the percentage share of imports in case of Australia has
remained high as compared to the value of exports during this period as result of which trade
balance remained in favour of Australia. The foreign trade in regard to Iran remained
fluctuating during the period of study. The percentage share of exports to Hong Kong has
increased at a higher rate as compared to imports from Hong Kong during this period.

So the analysis concludes that major changes have been taken place in regard to the direction
of India’s trade as well as India’s trade with ten major trading partners during the period under
study.

CHAPTER-4

RELATIONSHIP BETWEEN EXPORTS, ECONOMIC GROWTH AND

TRADE OPENNESS IN INDIA: AN EMPIRICAL ANALYSIS
Foreign trade is being recognized as an engine of growth. The changes taking place in the world
economy have influenced the foreign trade of all countries in general and India in particularly.
In the light of global changes, Indian government also initiated the process of domestic and
external economic reforms in the early 1990s.

Several studies have also been conducted at global level to examine the link between openness
and trade performance. These studies had attempted to measure the impact of liberal policies
on economic growth, reduction of poverty and income inequalities. Many studies have
advocated the positive contribution of liberal policies to the economic growth of these
countries. The focus of trade policy reforms in India have been on globalization, liberalization
and privatization for increasing competitiveness of manufacturing sector of India to meet global
market needs.

These reforms have led to substantial changes in the structure of external sector of India. The
early empirical literature on international trade and growth were stimulated by the divergent
trends in economic growth throughout the world (Berg and Lewer, 2007).

Most of the countries that had adopted protectionist Import Substitution Policies after World
War II experienced lower growth rates by the 1970s, whereas a small number of East Asian
Economies made the growth of international trade a central part of their overall economic
policies, as a result of which these countries experienced unprecedented rates of economic
growth (ibid, 2007).

The experience of China, Mexico, South Africa and Israel etc. during 1980s and 1990s provides
further support to trade openness, which is used as an instrument for attaining a higher level of
economic growth. The success of export-led growth model motivated many LDCs which were
facing economic instability. (Shirazi, et al. 2004).

In the light of above scenario, the aim of this analysis is to examine the causality relationship
among export growth, trade openness and economic growth for India during the Post WTO
covering period from (1996-97[Q1] to 2008-09[Q4]) on the basis of 127 quarterly data. The
present section has been designed to examine the validity of the export-led growth (ELG)
hypothesis implemented in India during the Post WTO Period. The relationship between three
variables i.e. trade openness, export growth and its impact on economic growth within the
framework of Vector Error Correction Model (VECM) using the Johansen Technique of Co-
integration and the Block Exogeneity Wald Test has been analyzed.

The uniqueness of the present study is due to the following three reasons, namely,

(i) it is based on the empirical evidences of ELG hypothesis implemented during the Post
WTO regime;
(ii) Advanced techniques of time series analysis are applied to achieve more accurate
results;
(iii) Trade openness has been an important element of economic development strategy
adopted by the Indian government during the post reforms period.

Moreover, the present study is a modest effort to analyze the association among trade
openness and GDP growth which has been a bone of contention among the researchers during
the post Second World War period.

4.1 EXPORT LED GROWTH HYPOTHESIS: EMPRICAL EVIDENCE

Over the past four decades, economists have generated enough evidences on the basis of
statistical analysis to study the link between external trade and GDP (Berg, 2007). Researchers
have estimated correlation coefficients and regression coefficients, tested for co-integration,
and performed a variety of other statistical tests to prove or disprove association between
external trade and GDP.

Researchers used data sets covering a wide variety of countries, time periods, and economic
variables (ibid). There is no convincing statistical evidence which suggests that trade and
economic growth is negatively correlated (ibid). Therefore, the relationship between growth in
exports and GDP has a crucial matter of debate among economists and researchers all over the
World. So an effort has been made to examine causal relationship between the three variables,
namely, Economic Growth (GDP), Exports growth, and Trade Openness of India during the Post-
Liberalization period. No doubt, a vast literature exist to address this issue and since 1960s
economists have attempted to explain this hypothesis with their own logic but the outcomes
are mixed and contradictory for all the countries i.e. developed, industrialized and developing
countries.

The existence of mixed empirical evidences has resulted to the continuation of this debate
among the researchers and policy 128 makers. To build a theoretical framework that links
foreign trade and GDP, a careful examination is made to test statistical evidence which tells us
about the link between foreign trade and GDP. For the analysis, following hypotheses are
tested to examine the causal relationship between economic growth (GDP), exports, and trade
openness of India during the Post-Liberalization period.

Hypotheses between Exports, GDP and Trade Openness

Null Hypotheses Alternative Hypotheses

H0: Exports Growth (X) does not cause GDP H1: Exports Growth (X) cause GDP

H0: Increase in GDP does not cause Exports Growth (X ) H1: Increase in GDP cause Exports Growth (X)

H0: Trade Openness (TO) does not cause Export Growth (X) H1: Trade Openness (TO) cause Export Growth (X)

H0: Export Growth (X) does not cause Trade Openness (TO) H1: Export Growth (X) cause Trade Openness (TO)

H0: Trade Openness (TO) does not cause GDP growth H1: Trade Openness (TO) cause GDP growth 6.

H0: GDP growth does not cause Trade Openness (TO) H1: GDP growth cause Trade Openness (TO)

4.1A EMPIRICAL RESULTS

I. Results of Unit Root Test

The critical values for the variables are based on Mac Kinnon (1996) i.e. -3.5683, -2.919 and
-2.597 at 1 per cent, 5 per cent, and 10 per cent significance level respectively. According to the
findings of this test, all variables, ‘Export’, ‘Trade Openness’, and ‘GDP’ are nonstationary at the
level but all variables under study are stationary at first difference.
 We have also checked unit root of the differenced variables series. The results indicate that the
differenced series are not stationary at level; therefore we tested the stationarity of residuals
series with the help of the following regression equation.

GDP = α+βX+µ

The residuals in unit root are stationary at level; therefore, the data has justified the properties
for the application of Co-integration test. All the variables are stationary at their first difference
and 1 per cent level of significance is used.

4.1B MAJOR FINDINGS

On the basis of the results of the Phillips Perron test, the study found that all variables, namely,
real exports; real GDP; and trade openness are stationary at first difference. The results of the
statistics of the Johansen’s λtrace and λmax support that a stable long-run relationship exist
among the variables under the study during the post WTO reforms. The study found that there
is bi-directional causality running from GDP to export growth and vice versa for India.

The ELG and GLE hypothesis is valid for India. In the light of above findings, the present study
supports the hypothesis that a positive correlation exist between export growth and GDP
growth during the post-WTO era in India.

CHAPTER-5

PERFORMANCE OF INDIAN FOREIGN TRADE UNDER PRE- AND

POST-WTO PERIODS
The experience of India with her balance of payments in the past few decades has been a mixed
one. Ever since independence, India has faced deficit in its balance of trade and balance of
payments. In other words, imports have always been higher than exports. This has been the
characteristic of most of the developing countries during the period of reconstruction and
modernization of their colonial economies.

In this chapter, we attempted to examine the impact of the changes introduced in the foreign
trade policy/ EXIM policy on the three very important aspects of Indian economy, namely,
growth of exports and imports; balance of trade; and balance of payments.
 The analysis related to the growth of exports, imports and balance of trade is presented in
Section-I, while the analysis of the Balance of Payments (BOPs) position of India during the
Post-WTO regime has been presented in Section-II.

SECTION-I

5.1 EXPORTS, IMPORTS AND BALANCE OF TRADE

It has been emphasized over the period of time that the role of external sector is very
significant for a country to achieve higher growth at domestic and international level. The
performance of exports of any country is a hallmark of its competitive status at global level
while performance of imports has been recognized as an indicator of high standard of living of
people of a country.

Over the last two decades, significant changes in the EXIM policy/foreign trade policy of India
have helped to strengthen the production base of exports; removal of procedural irritants;
facilitated input availability by focusing on quality and technological up gradation; and has
improved competitiveness of Indian exports at the global level.

Moreover, several steps have been taken to encourage exports through multilateral and
bilateral initiatives, identification of thrust areas and focused regions. In this section, we have
analyzed the effect of foreign trade policy on Indian exports, imports and balance of trade. 140
For this purpose, the time series data has been divided into two periods, namely, pre and post-
WTO periods

An attempt has also been made to show exports, imports and trade balance in figure 5.1 and
exports and imports as proportion of GDP under the pre-WTO period graphically in figure 5.2.

Figure 5.1
 Figure 5.2

5.2 OFFICIAL RESERVES ACCOUNT; GOLD RESERVES, FOREX RESERVES,

IMF LOANS
Since independence, India continuously suffered on account of foreign exchange constraints.
The foreign exchange reserves had improved during the Post WTO period. The analysis shows
that the BOPs situation improved from Rs. (-)4471 crore in 1990-91 to Rs. 932.6 crore as an
average of five years, (1990-91 to 1994-95) period of reforms which is the result of IMF
assistance of Rs. 923.8 crore received during this period.

This remained positive as an average of five years period of 1994-95-1999-00 with Rs. 16567.6
crore. This situation further improved for the period 2000-01 to 2004-05 with the balance of Rs.
85234.6 crore. The situation on account of overall balance further improved with Rs. 113268
crore for the period of 2005-06 to 2009-10.

The situation of reserves under the study period is presented in figure 5.3 The graph shows the
net reserves of the changes in India were Rs. -14575 crore in 1994-95, which turned positive Rs.
9799 crore in 1995-96. It further increased to Rs. (-)20760 crore in 1996-97.

However, the picture of foreign reserves had not been remained stable during the WTO period.
The data reveals that in 2000-01, the amount of reserves was Rs. (-) 27528 crore, which
increased to Rs. -143993 crore in 2003-04, which improved due to decline in deficit of Rs.
-115907 crore in 2004-05 157 and Rs. -65896 crore in 2005-06.

Reserves deficit were further widened to Rs. -369689 crore in 2007-08 which improved to Rs.
97115 crore in 2008-09 in the recession period which further declined to Rs. (-) 64237 crore in
2009-10.

Figure5.3

CONCLUSION

So the foregoing analysis leads us to the conclusion that overall balance of trade remained
deficit during both pre and post-WTO periods. The trade in invisibles transactions has improved during
this period but the capacity of Indian exports to finance the increasing requirements of the Indian
imports could not improve during this period. So these developments have led to a continuous pressure
on the Indian balance of payments situation, which resulted to high rate of inflation, depreciation of
Indian rupee during the recent times.

CHAPTER-6

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

The ultimate goal of economic development is to raise the level of living of the large
majority. The major challenge of development is to improve the quality of life. Especially in the
world’s poor countries, a better quality of life generally calls for higher incomes- but it involves
much more. It encompass as ends in themselves, better education, higher standard of health
and nutrition, lower level of poverty, a cleaner environment, more equality of opportunity,
greater individual freedom and a richer cultural life (World Development Report, 1991).

However, a debate is going on among the economists and the policy makers, regarding
the choice of strategy of development for a country. According to one school of thought, all
countries are dependent on each other. All the countries must accept the fact that they are part
of world economy. The growth in International business has forged a network of global linkages
around the world that binds all countries, institutions and individuals-much closer than ever
before (Czinkota et al. 1994). Moreover, it is difficult for a country to survive without trade with
other countries due to the unequal distribution of natural resources.

Large share of basic needs of human beings depend upon the trade in the contemporary
world. Therefore, trade must be promoted for steady and sustainable economic growth in the
world economy. The various theories of International Trade like Absolute Advantage Theory,
Comparative Advantage Theory, Heckscher and Ohlin Theory and Porter’s Competitive
Advantage of Nations etc. advocates that trade is good for the global economy. Trade appears
to be one of the most distinctive and fundamental activity of human societies.

The diversity in the geographical distribution of wealth and natural resources compel
humankind to obtain those commodities from remote areas, which cannot be generated within
his own locality. The differences of human wants account for an extensive system of exchange
between the inhabitants of different places and nations (Arora, 2007).

International trade also strengthened foreign exchange reserves and accelerate the
supply of imports of capital goods in a country, which results in enhanced productive capacity
at 165 domestic level and improved situation of balance of payments of an economy of each
country. The above discussion leads us to the conclusion that External sector is very significant
for a country to achieve growth at domestic and international level. The performance of
exports of any country is a hallmark of its competitive status at global level and performance of
imports are recognized as an indicator of high standard of living of people of a country.

There is another school of thought, which argues that developing and economically
weak countries should go for the Import Substitution Policy (Inwardlooking Development
Strategy), by producing those products which a country used to import from the other
countries. By doing so a country may reduce its import bill and improve its balance of payments
situation. The argument is that a country should take measures to become self-reliant rather
than dependent on other countries over the period of time. To achieve the goal of self reliance,
more and more countries across the world adopted the import substitution policy approach
during the first half of the 20th century.

However, the increasing marketisation of the production processes mainly controlled by

developed world led by the Multinational Corporations (MNCs)/ Transnational Corporations
(TNCs) have created an environment in which the developing and least developed countries
have been compelled to open-up their economies for the products of developed world.

The formation of WTO has further activated the process of liberalization and
globalization. The World Trade Organization (WTO), which established on 1st January 1995,
replaced the General Agreement on Tariffs and Trade (GATT). WTO is a Multilateral Trade body,
which provides a comprehensive regulatory framework for the promotion of global trade. It has
159 members on March, 2013, which represent more than 97 per cent of total World Trade.

Prior to the formation of WTO, India had largely been remained insulated from the
world trading system for more than four decades since independence. It has been argued that
decades of pursuit of an inward-looking development strategy, almost hostile attitude towards
foreign trade, technology and investment and by pessimism about export markets, inevitably
led India to become marginalized in world trade (Srinivasan, 2001).

In the light of above situation, Indian policy makers introduced large scale reforms after
1991. The Government of India took a number of initiatives in the foreign trade policy like
simplification of Import-Export procedure, reduction in Tariffs and Non-Tariffs barriers, Foreign
Currency reforms, Liberal Credit, setting up of Export Promotion Zones, incentives for the
Foreign Companies and Joint Ventures etc.

As a result of these reforms, the commodity structure and geographical pattern of

exports of India has changed under the WTO regime. The total value of India’s international
trade has gone up during the post reforms period. However, In spite of the remarkable growth
in Indian trade, its share in world trade was only 0.66 percent in 2001, which was less than that
of small countries like Taiwan and Singapore. In 1980-81, exports as percentage of GDP were
only 5.5 per cent, which marginally increased to 5.8 per cent in 1990-91 but substantially
improved to 11.7 per cent in 2003-04. This shows the growing importance of exports for the
Indian economy (Datt, 2006). A liberal trade policy was expected to positively influence the
performance of Indian trade as it happened in some other countries, namely, East Asian
countries (Malaysia, Korea and Philippines), China and Mexico etc. These reforms were
concerned with adoption of policies that encourage private domestic and foreign investments;
reduction of the government interventions in the economy; and the other policies, which are
intended to enhance efficiency and better allocation of resources.

These reforms have put a great impact on external sector policy of India which primarily
focused on promotion and development of foreign trade instead of control and regulation over
trade. The main motive behind all these changes in foreign trade policy has been to achieve
higher level of economic growth and employment generation in the economy.

Therefore, the present study is an attempt to analyze the importance of all these
changes to achieve the said goals as well as its implications for the Indian economy in general
and different sections of the society in particular. The study is definitely to bridge gap in
research and will also positively contributes to further strengthening of the foreign trade policy
in India to face the challenges of World Trade Organization. The study has been designed to
analyze the performance of India’s foreign trade during the post-WTO period.

6.1 OBJECTIVES OF THE STUDY

The present study has been planned to analyze the impact of World Trade
Organization’s policies on Indian foreign trade. The study is a modest attempt to achieve the
following objectives:

• To analyze the Indian Foreign Trade Policy reforms during the Post-WTO period;

• To study the changes in the Commodity Composition of Indian Exports and Imports during the
Post- WTO period;

• To study the changes in the Direction of Indian Exports and Imports during the Post- WTO
period;

• To study the relationship between trade openness, exports and economic growth during the
Post-WTO period;

• To study the impact of Indian Foreign Trade reforms on Balance of trade and Balance of
Payments (BOPs) during the period under study; and
 • To suggest suitable recommendations for the policy makers to take remedial measures for
necessary corrections.

6.2 DATABASE AND RESEARCH METHODOLOGY

DATABASE
The secondary data have been used to analyze the performance of external sector of India. The
secondary data have been taken from various sources, which include various issues of
Handbook of Statistics of Indian Economy, Reserve Bank of India (RBI) and various issues of
Economic Survey of India. The data have also been taken from the Reports of Centre for
Monitoring of Indian economy (CMIE), and Official Websites of the Government of India.

The present study covers a comprehensive period of 17 years from 1994-95 to 2010-11 to
evaluate the performance of Indian foreign trade with special focus on its composition and
direction. The value of balance of trade has been generated by taking the difference of exports
and imports.

The analysis of pre-WTO period has also been carried-out to compare the performance of pre
and post-WTO periods. For the analysis of composition of Indian foreign trade, we have taken
the principal items of Indian merchandise export goods and import goods, which includes,
namely, agricultural & allied products; ores and minerals; leather & manufacturing; chemicals &
allied products; engineering goods; gems & jewellery; handicrafts; petroleum; and others.

The data on direction of Indian foreign trade included all the imperative destinations of Indian
foreign trade, namely, OECD (Organization for Economic Cooperation and Development), OPEC
(Organization of Petroleum Exporting Countries), Eastern Europe and Developing countries.

STATISTICAL TOOLS APPLIED FOR THE ANALYSIS OF DATA

In order to achieve the objectives of the present study, descriptive statistical techniques such as
percentages and averages have been used. The Compound Growth Rate and Regression
technique have been applied for the scientific analysis of the study.

Advanced Time Series Analytical Techniques such as Granger-Causality test in a multivariate

Vector Auto-regression (VAR) framework, Phillips Perron (PP) Test, Johansen Co-integration
Test and Block Exogeneity Wald Test have been applied to find the relationship between trade
openness, exports growth and economic growth. Eviews, SPSS Package and MS-Excel software
have been used for the analysis of data.

6.3 HYPOTHESES OF THE STUDY

In the course of our investigation the following hypotheses have been framed to test on the
basis of the findings of the present study:

H1: The composition of Indian Exports and Imports has changed during the postWTO period;

H2: The direction of Indian Exports and Imports of goods has changed during the post-WTO
period;

H3: The Liberalization of trade policy led to higher volume of exports;

H4: Export growth is positively related to the growth of GDP;

H5: The share of merchandised exports as percentage of GDP has increased during the post-
WTO period;

H6: Foreign trade reform measures have succeeded to reduce trade deficit or balance of
trade; and H7: Foreign trade reforms have a positive impact on the Balance of payments.

6.4 MAJOR FINDINGS OF THE STUDY:

FINDINGS RELATING TO DIRECTION OF INDIAN EXPORTS AND

IMPORTS
• The analysis reveals that the annual average share of OECD countries has sharply declined
from 58.65 per cent in 1994-95 to 33.30 per cent in 2010-11. The share of OECD countries in
India’s total exports has shown a declining trend except the years of 1997-98, 1998-99 and
2002-03 respectively. The compound annual growth rate of OECD Countries is 13.5 per cent
during the post-WTO period and found significant at 1 per cent level of significance.

• The share of European Union’s in India’s total exports was Rs. 22075 crore in 1994-95, which
increased to Rs. 213313 crore in 2010-11. The annual average share of European Union (EU) in
India’s total exports has shown a declining trend and its share decreased from 26.70 per cent in
1994-95 to 18.43 per cent in 2010- 11. The compound annual growth rate of European Union is
14.82 per cent and found significant at 1 per cent level of significance during the post-WTO
period.

• The amount of North America’s share in India’s total exports was Rs. 16602 crore in 1994-95,
which increased to Rs. 122785 crore in 2010-11. The annual average share of North America in
India’s total exports has also declined from 20.08 per cent in 1994-95 to 11.55 per cent in 2010-
11. The compound annual growth rate of North America is 12.72 per cent and found significant
at 1 per cent level of significance under the study period.

• The share of Asia & Oceania’s in India’s total exports was Rs.7623 crore in 1994- 95, which
increased to Rs. 32442 crore in 2010-11. Similarly EU and North America, its annual average
share has also declined from 20.08 per cent and 9.22 per cent in 1994-95 and 2.94 per cent in
2010-11 respectively. The compound annual growth rate of Asia & Oceania is 8.64 per cent and
found significant at 1 per cent level of significance during the period under study.

• The share of OPEC countries in India’s total exports was Rs.7626 crore in 1994- 95, which
increased to Rs. 249375 crore in 2010-11. The annual average share of 174 OPEC countries in
India’s total exports has shown an upward trend and has increased from 9.22 in 1994-95 to
21.54 per cent in 2010-11. The compound annual growth rate of the share of OPEC Countries in
India’s exports has 24.45 per cent and found significant at 1 per cent level of significance during
the post WTO period. This is a major development in the destination pattern of Indian exports
during the Post-WTO period.

• The amount of Eastern Europe’s share in India’s total exports was Rs.3319 crore in 1994-95,
which increased to Rs. 13547 crore in 2010-11. The annual average share of Eastern Europe in
Indian exports has sharply declined from 4.01 per cent in 1994-95 to 1.17 per cent in 2010-11.
However, the compound annual growth rate of Eastern Europe in Indian exports is 6.91 per
cent and found significant at 1 per cent level of significance during the period under study.

• An attempt has also made to check the trend in regard to the developing countries’ share.
The share of developing countries in India’s total exports was Rs.21883 crore in 1994-95, which
increased to Rs. 481566 crore in 2010-11. The annual average share of developing countries in
Indian exports as a group has increased from 26.47 per cent in 1994-95 to 41.60 per cent in
2010-11. The compound annual growth rate of developing countries is 21.06 per cent and
found significant at 1 per cent level of significance during the period under study. The increase
in share of developing countries in Indian exports is another major development during the
post-WTO phase.

• The amount of Asia’s share in India’s total exports was Rs.1791 crore in 1994-95, which
increased to Rs. 357873 crore in 2010-11. The annual average share of Asia in India’s total
exports has increased from 21.67 per cent in 1994-95 to 30.92 per cent in 2010-11. The
compound annual growth rate of Asia is 20.5 per cent and found significant at 1 per cent level
under study period.

• The amount of Africa’s share in India’s total exports was Rs.2755 crore in 1994- 95, which
increased to Rs. 75797 crore in 2010-11. The annual average share of Africa in India’s total
exports has increased from 3.33 per cent in 1994-95 to 6.55 per cent in 2010-11. The
compound annual growth rate of Asia is 21.62 per cent 175 and found significant at 1 per cent
level of significance under the post-WTO period

. • The amount of Latin America’s share in India’s total exports was Rs.1207 crore in 1994-95,
which increased to Rs. 47896 crore in 2010-11. The annual average share of Latin American
countries in India’s total exports has also increased from 1.46 per cent in 1994-95 to 4.14 per
cent in 2010-11. The compound annual growth rate of Asia is 25.6 per cent and was found
significant at 1 per cent level under the post-WTO period.

• The amount of OECD’s share in India’s total imports was Rs. 46256 crore in 1994-95, which
increased to Rs. 479785 crore in 2010-11. The annual average share of OECD countries has
sharply declined from 51.41 per cent in 1994-95 to 29.89 per cent in 2010-11. The share of
OECD countries in Indian imports has shown a declining trend during the period under study.
During the post-WTO period, the compound annual growth rate of OECD Countries in India’s
imports is 15.88 per cent and found significant at 1 per cent level of significance.

• The share of European Union in India’s total imports was Rs. 22339 crore in 1994-95, which
increased to Rs. 193228 crore in 2010-11. The annual average share of EU in India’s total
imports has declined from 24.83 per cent in 1994-95 to 12.04 per cent in 2010-11 except 1995-
96 and 1997-98. This is a major development in the direction of India’s imports during the post-
WTO period. The compound annual growth rate of EU Countries is 14.02 per cent and found
significant at 1 per cent level of significance during the post-WTO period.

• The amount of North America’s share in India’s total imports was Rs. 9957 crore in 1994-95,
which increased to Rs. 93233 crore in 2010-11. The annual average share of North America in
India’s total imports has declined from 11.07 per cent in 1994-95 to 5.81 per cent in 2010-11.
The compound annual growth rate of North America is 16.14 per cent and found significant at

1 per cent level of significance during the study period.

• The share of Asia & Oceania in India’s total imports was Rs. 9517 crore in 1994- 95, which
increased to Rs.86632 crore in 2010-11. The annual average share of Asia & Oceania in India’s
total imports has declined from 10.58 per cent in 1994- 176 95 to 5.4 per cent in 2010-11. The
compound annual growth rate of Asia & Oceania has 15.88 per cent and found significant at 1
per cent level of significance during the post-WTO period.

• The amount of OPEC’s share in India’s total imports was Rs. 18996 crore in 1994-95, which
increased to Rs. 542729 crore in 2010-11. The annual average share of OPEC countries to India’s
total imports has shown a fluctuating trend and has increased from 21.11 per cent in 1994-95
to 33.81 per cent in 2010-11. During the period under study, its share varied from as low as
5.32 per cent in 2000-01 to as high as 33.81 per cent in 2010-11. It is a major development in
the destination pattern of Indian imports during the Post-WTO period.

• The share of Eastern Europe in India’s total imports was Rs. 3038 crore in 1994- 95, which
increased to Rs. 25546 crore in 2010-11. The annual average share of EE in India’s total imports
has sharply declined from 3.38 per cent in 1994-95 to 1.59 per cent in 2010-11. However, the
compound annual growth rate of Eastern Europe in Indian imports is 15.88 per cent and found
significant at 1 per cent level of significance during the period under study.

• The share of developing countries in India’s total imports was Rs.21673 crore in 1994-95,
which increased to Rs. 525059 crore in 2010-11. Its annual average share in India’s total imports
as a group has increased from 24.09 per cent in 1994-95 to 32.71 per cent in 2010-11. The
compound annual growth rate of developing countries is 23.03 per cent and found significant at
1 per cent level of significance under the study period. The increase in share of developing
countries in India’s total imports is a significant development during the WTO phase.

• The amount of Asia’s share in India’s total imports was Rs. 15987 crore in 1994- 95, which
increased to Rs. 429141 crore in 2010-11. The annual average share of Asia in India’s total
imports has increased from 17.77 per cent in 1994-95 to 26.73 per cent in 2010-11. The
compound annual growth rate of Asia is 23.59 per cent and found significant at 1 per cent level
of significance under study period.

• The share of African countries in India’s total imports was Rs. 3261 crore in 1994-95, which
increased to Rs. 56958 crore in 2010-11. The annual average share of African Countries in
India’s total imports has declined from 3.62 per cent in 1994-95 to 3.55 per cent in 2010-11.
The compound annual growth rate of African Countries is 19.4 per cent and found significant at
1 per cent level of significance under study period.

• The amount of Latin American Country’s share in India’s total imports was Rs. 2424 crore in
1994-95, which increased to Rs. 38961 crore in 2010-11. The annual average share of LACs in
India’s total imports has declined from 2.69 per cent in 1994-95 to 2.43 per cent in 2010-11.
The compound annual growth rate of LACs is 22.74 per cent and found significant at 1 per cent
level of significance during the post-WTO period.

• The share of Others Countries in India’s total imports was just only Rs. 8.1 crore in 1994-95; it
has sharply increased to Rs. 32195 crore in 2010-11. The annual average share of Others
Countries in India’s total imports had negligible share in 1994-95, just 0.01 per cent which
increased to 2.01 per cent in 2010-11. The compound annual growth rate of these countries is
75.39 per cent and found significant at 1 per cent level of significance during the post-WTO
period.
 FINDINGS RELATING TO THE PERFORMANCE OF BALANCE OF TRADE
AND BALANCE OF PAYMENTS
• The compound growth rate for the entire period from 1980-81 to 1993-94 has been found
statistically significant at 1 per cent level of significance. The analysis of the performance of
Indian exports and imports during the post WTO period (1994-95 to 2010-11) reveals that both
exports and imports has been increased in value terms, however, the rate of growth of imports
has been increased at higher rate as compare to the rate of growth of exports during this
period. The compound growth rate for this period for exports and imports have been found
significant 1 per cent level of significance. However, at the same time, the trade deficit has
widened during this period, though both exports and imports as a percentage GDP has
increased during this period.

• Another development is that the export as a percentage of import has declined during this
period which is the reverse of pre-WTO period when exports increased continuously as
percentage of imports. It implies that the capacity of exports to finance imports has declined
during this period which contributed to the higher level of trade deficit.

• Furthermore, the analysis of balance of payments situation during the post reforms period
reveals that the performance of invisibles transactions improved after 1990-91 during the
entire period of post-WTO. However, the improvement on account of the trade of invisibles
could not improve the current account situation during the entire period of post reforms period
which continuously led to the higher level of deficit during this period.

However, there is some improvements in terms of performance of capital account transactions

during this period which continuously increased and remained positive. However, in spite of
these positive developments, the overall balance of payments situation turned negative from
1990-91 to 1995-96 and in the year 2008-09 during the post-WTO period.

• So the foregoing analysis leads us to the conclusion that overall balance of trade remained
deficit during both pre and post-WTO periods. The trade of invisibles transactions have
improved during this period but the capacity of Indian exports to finance the increasing
requirements of the Indian imports could not improve during this period. So these
developments have led to a continuous pressure on the Indian balance of payments situation
which resulted to high rate of inflation, depreciation of Indian rupee during the recent times.
6.5 TESTING OF HYPOTHESES
An attempt has been made to test the hypothesis on the basis of the empirical analysis of the
performance of Indian Foreign trade under WTO regime:

• The first hypothesis that, “the composition of Indian Exports and Imports has changed during
the post-WTO period” has been accepted as the commodity composition of the Indian exports
and imports has undergone a major change during the post-WTO period.

• On the basis of the findings of the study, the second hypothesis that, “The direction of Indian
Exports and Imports of goods has changed during the post WTO period” has been accepted as
the destination pattern of Indian exports and imports has substantially changed during the
Post-WTO period.

• The third hypothesis that, “The higher level of trade Liberalization led to higher volume of
exports” has been accepted as India’s exports have increased during the Post-WTO period but it
is pertinent to note that the imports have increased at a higher rate as compared to exports
which led to higher trade deficit in India during the study period.

• The fourth hypothesis that, “export growth is positively related to the growth of GDP” has
also been accepted as there is a bi-directional causality running from GDP to export growth and
vice versa for India. The ELG and GLE hypothesis is valid for India and empirical evidence
supports the existence of long-run equilibrium relationship between exports growth and
economic growth.

• The fifth hypothesis that, “The share of merchandised exports as percentage of GDP has
increased during the post-WTO period” has been accepted on the basis 181 of the facts that
both exports and imports as a percentage of GDP has increased during the pre- and post-WTO
period.

• The sixth hypothesis that, “Foreign trade reforms measures have succeeded to reduce trade
deficit or balance of trade” has been rejected on the basis of the analysis of data that the
imports have increased at a higher rate as compared to exports which led to higher trade deficit
in India during the post-WTO period. It implies that the capacity of exports to finance imports
has declined during this period which contributed to the higher level of trade deficit.

The table 6.1 is presented the summarized form of the results of the hypotheses of the study.
 Table 6.1

6.6 CONCLUSIONS AND RECOMMENDATIONS:

CONCLUSION:
Over the last two decades, the main purpose of foreign trade reforms was creating an
environment for achieving a rapid increase in exports, raising India’s share in world exports and
making exports as an engine for achieving higher economic growth. Number of measures has
been introduced during the Post-WTO Era, namely,

 simplification of Import-Export procedure,

 reduction in Tariffs and NonTariffs barriers,
 Foreign Currency reforms,
 Liberal Credit,
 setting up of Export Promotion Zones
 incentives for the Foreign Companies and Joint Ventures etc.

The formation of WTO, growth and improvement in infrastructure (i.e. roads, railways and
ports etc), both in terms of quantity and quality, are considered as the positive developments.
The reduction in tariff rates and removal of non-tariff barriers as per the provisions of WTO
compliance has also contributed to the higher growth in exports. The study found that the
trade reforms introduced during the ‘1990’s could not narrow down the trade deficit which was
one of the main objectives of new economic policy.

The study also found that the share of both export and import of goods has increased during
the post reform period but higher increase in imports has further widened the trade deficit.
There can be few reasons of this outcome: the import bill started jacking up when the business
houses took full advantage of the liberalization policy of government and imported all kinds of
items from abroad; imports of a large number of goods were brought under the Open General
Licence (OGL) which led to increase in imports; a number of foreign collaborations were
approved which led to increase in import of capital goods and foreign technology.

The findings of the present study create doubts about the efficacy of the export led growth
strategy as a plausible substitute of import substitution strategy of growth. The analysis of
exports and imports as a percentage of Gross Domestic Product (GDP) shows the impact of
liberal policies on the Indian economy.

The study found that though the share of both exports and imports as a percentage of GDP has
increased during the period under study, the increase has been much higher in case of imports,
which has further widened the trade deficit.

Moreover, the higher share of Indian GDP has been eaten by the increasing liabilities on
account of import payments, as it happened in Mexico after trade liberalization. The pro
export-led growth model school of thought suggests that the surplus generated from the
exports contribute to the development of the developing countries, but it could not happen in
case of India.
On the basis of empirical evidences, the present study found that there exist a significant long-
term bidirectional causation between the determinants i.e. export causes economic growth and
economic growth has also influenced export growth during the post WTO period.

Based on the Vector Error Correction Model results, the evidence suggests that both the
variables exports and economic growth are related with past deviations and higher export
growth have a positive impact on the economic growth in both short-run and long-run. Our
study reveals that the exports have positively contributed to accelerate the economic growth of
India during the post liberalization period. The study also found the Uni-directional causality
among the trade openness and GDP of India.

The analysis of data reveals that higher trade openness has a positive impact on the GDP of
India during the Post-WTO period. It is clear from the empirical evidences that globalization and
liberal trade regime have helped to create a more open trade environment which led to
positive spillover effects on the economic growth of the country.

The study found that the growth rate of exports remained lower as compared to growth rate of
imports during the post-WTO period. This development is the consequence of repeated
devaluation of Indian rupee and increasing import intensity of both production and
consumption goods during the post-reforms period. In other words, each unit of domestic
production in the economy has thus turned out, on an average to be more import-intensive.

It implies that the increase in the volume of Indian merchandise exports during the post-
reforms period was not adequate to pay for the increased demand for the imports and the loss
resulted on account of devaluation/ depreciation of Indian Rupee during the ‘1990’s and
afterwards.

It is pertinent to mention that the performance of the traditional goods of exports, namely, the
textile and textile products; leather and leather manufacturers; and the handicrafts had been
very poor during the post-WTO period. These are the sectors which have potential to absorb
more labour being labour intensive sectors.

However, these sectors could not even maintain its share in the world market which they have
during the pre-reforms period. This has resulted into the displacement of 185 workers from the
exiting factories and led to mass poverty and unemployment in the country.

RECOMMENDATIONS:
From the foregoing analysis, the following recommendations are proposed.
• The study recommends that in order to make Indian exports more competitive in the
international market, and to improve level of productivity of Indian export sector, a number of
measures, including, the diversification of export commodities, infrastructure development,
further reduction in tariff barriers and quantitative restrictions, increase in the incentives and
for research and development instead of subsidies to exporters and operationalization of
Export Processing Zones (EPZs) are required

. • The desire for rapid industrialization has led considerable expansion in the imports of
petroleum, capital goods, pearls and precious stones, iron and steel, gold and silver, chemicals
and edible oils, but due to the higher increase in the gap between India’s exports and imports
under study period, there is need to screen and regulate imports and adjust them according to
the requirements of the economy.

• In order to facilitate the promotion of exports, there is a need to give more impetus to major
foreign exchange earning sectors, namely, cottage and handicrafts, gems and jewellery,
electronic and the computer software, engineering and consultancy.

• The study found that Indian exports have reached to new areas of international market, as a
result of which geographic base has expanded during the period under study, but it has
remained under pressure. India must concentrate on the markets like Germany, Italy, U.K,
Spain, and Netherlands where intra union imports are relatively of lesser magnitude. In order to
improve our trade with EU, the study suggested that there is need to promote co-operation on
standards, encouragement to technology transfer, absorption and undertaking aggressive
marketing should be adopted by Indian industries to enhance their exports to the European
Union. Such steps are required due to the fact that India has been facing increasing difficulty in
gaining market access due to the protectionist policies of the European Union in areas like
Clothing, where India has comparative advantage.
• In view of the continuous BOPs problems in India, there is need to emphasize on domestic
market which is being capturized by the exports from China

• There is need of Export promotion measures by the Indian government for making their
export products more competitive at global market. The quality of the products must be
improved.

• Marketing Information System (MIS) should be improved to compete at global level.

• The simplification of exports procedure is required to promote Export Oriented units (EOUs)
in the light of WTO agreement.

• Indian should take lead to promote tarde among the SAARC countries which could not
implement the provisions of SAFTA till-date. India’s share in SAARC countries as percentage of
world trade is less than 5 per cent. So there is lot of scope for future trade with SAARC
countries.

• There is need to strengthen the other bilateral trade agreements which are already in
existence.

• The study strongly recommends for the review of foreign trade policy, which could
strengthened the domestic base of the Indian economy for sustainable development and could
positively contribute to reduce the increasing pressure on the Balance of Trade and Balance of
Payments and generate employment for millions of unemployed to boost the domestic
demand.

6.7 LIMITATIONS OF THE STUDY

Just like any other research project, the present study also has certain limitations, some of
which are listed below:

 The present study is based on secondary data, therefore, it carries all the limitations of
a secondary data based studies;
 The present study could not research the impact of export-led economic growth model
on the transfer of technology, level of unemployment, level of competition 187 and
reduction of poverty in India during the post-WTO period which are the key problems
being faced by the Indian economy;
 Moreover, the present study could not differentiate the recession period from the
normal period, which might have affected the results of the study;
 Some advanced statistical tools have been applied for the analysis of data Therefore, all
the limitations of such techniques might have affect on the results of the present study;
 The study is based on secondary data, therefore, the problems being faced by exporters
and importers are missing in India could not be included in the study; and
The present study has focused on the merchandised exports and imports, therefore, the
contribution of invisibles exports and imports has not included in the study

7.8 SCOPE FOR FURTHER RESEARCH

 There is a scope for further research to investigate the impact of export-led economic
growth model on the transfer of technology, level of competition and reduction of
poverty in India during the post-WTO period.
 It is pertinent to mention that in spite of existence of the positive relationship between
the GDP, export growth and trade openness, there is question mark how this
development has contributed to the level of income inequalities, impact on poverty
reduction and generation of employment in India.
 There is further scope for research in the performance of the invisibles transactions
during the post-WTO period.
 Research can be carried out to measures the impact of WTO provisions on the different
sectors and the stakeholders during the post-WTO
 The interstate comparison could be made in regard to the performance of exports as
many studies have pointed out that only few states have contributed more to the total
volume of exports during the post-WTO period.

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Annexure
ANNEXURE-I MINISTERIAL CONFERENCE OF WTO
The uppermost decision making body of the WTO is the ministerial conference that usually
conduct at least once every two years, in which all members of the WTO can take the decisions
on all the matters under any of the multilateral trade agreements. All key decisions are made by
the membership as a whole and in the WTO, power is not delegated to a Board of Directors or
the Organization’s chief.

In this respect, the WTO is different from other international organizations, such as the World
Bank and the International Monetary Fund. The rules are enforced by the members themselves
under agreed measures that they negotiated, including the possibility of trade sanctions.

WTO STRUCTURE/MINISTERIAL CONFERENCE

The WTO structure is governed by its highest decision making authority, the Ministerial
Conference, which composed of representatives of all WTO members. The general council
comes at the second level. The General council included all WTO members and it’s divided into
two main bodies, namely, ‘Dispute Settlement Body’ (DSB) and ‘Trade Policy Review Body’
(TPRB).
The Dispute Settlement Body is to keep an eye on the dispute settlement procedures, whereas
Trade Policy Review Body is to carry out regular reviews of the trade policies of individual WTO
members. At the third level, the General councils further hand over responsibilities to three
other major bodies, namely,

The Council for Trade in Goods (Goods Council);

The Council for Trade in Services (Services Council); and

The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council).

The Goods Council oversees the implementation and functioning of all the agreements covering
trade-in-goods (Annexe-IA of the WTO Agreement), though many such agreements have their
own specific overseeing bodies. The Services Council and TRIPS Council have accountability
towards their respective WTO Agreements (Annexes-IB and IC). These councils may set up their
own subsidiary bodies as required. In addition to these three councils, other three committees,

(i) The Committee on Trade and Development;

(ii) The Committee on Balance of Payments; and
(iii) The Committee on Budget, Finance and Administration

have been created by the Ministerial II Conference and these councils are report to the
General Council. The Committee on Trade and Development is related with matter
concerning with developing countries and, especially ‘Least Developed’ among them.

The Committee on Balance of Payments is accountable for consultations between WTO

members and countries, which take restrictive measures (under Articles XII and XVIII of
GATT) in order to cope up with the balance of payments difficulties. The Committee on
Budget, Finance and Administration is concerned with the issues relating to WTO’s financing
and budget.

Further, The Committee on Trade and Environment and the Committee on Trade in
Financial Services are concerned with the specific issues relating with environment
protection and issues relating to financial services. In spite of these committees, eleven
other sub-committees are also found to perform to specific functions and responsibilities.
These sub-committees include,

namely,

 The Committee on Agriculture;

 The Committee on Market Access;
 The Committee on Technical Barriers to Trade;
  The Committee on Import Licensing;
 The Committee on Sanitary and Phytosanitary Measures;
 The Committee on TRIMS;
 The Committee on Anti-Dumping Practices;
 The Committee on Custom Valuation;
 The Committee on Rules of Origin;
 The Committee on Subsidies and Countervailing Measures; and
 The Committee on Safeguards.

The ministerial conference is the highest decision making body of WTO. The following table
shows the ministerial conferences of WTO, which have taken place since its formation in 1995.