FREE ESSAY ON INDIAN TRADE LIBERALIZATION

INDIAN TRADE LIBERALIZATION

The Liberalization of India
According to Eichenberg in his lecture on February 2, 2000, liberal international
relations theory suggests that the key to peace is through the promotion of free trade
and the institution of democratic principles. In late 1991, with the transfer of the
Indian Parliament into the hands of political and economic reformers, despite much
opposition, India began its quest towards liberalization. The reform implemented freer
trade in the largest democracy in the world.
Facets of the Reformed Policy
Since India's independence from British control in 1947 until Rao took office, Indian
foreign policy can be characterized as fairly isolationist. During the Cold War period
India retained a policy of nonalignment. It was uncommitted to either the West or the
East and stuck to "swadeshi" ideology adopted. Swadeshi simply means "India first," and
is an extremely nationalistic ideology that advocates self-sufficiency. 
Just under a decade ago, Indian foreign policy has taking significant strides towards
liberalization. Since Prime Minister Narasimha Rao assumed his position as the head of
this state in economic shambles, India has undergone significant reform in its domestic
and foreign economic policy. Rao's administration implemented major changes in banking,
interest rates, and the ability to fully convert rupees (India's currency) in trade
transactions. But most importantly, towards the end of 1991, Rao opened India's doors to
foreign investment.
The reforms in 1991 were simply necessary. As Clive Crook reported in The Economist at
the time, the new government attempted to restructure the "ever-proliferating
bureaucracy" and the "license raj". This reshaping dismantled the barriers for foreigners
to enter into the Indian markets. Such barriers included series' of permits and licenses
granted only by members of the Indian Parliament or high-ranking bureaucrats. These
complicated and inefficient policies turned away potential foreign investors and,
therefore, hurt the Indian economy.
As part of the reform plan, Rao implemented revolutionary changes. According to the Asian
Survey by Nalini Kant Jha, Rao limited the equity participation to 40% and removed the
provision for the necessity of local control of industry. India also turned into favoring
export-led growth; therefore, it removed restrictions on foreign trade and significantly
reduced customs duties and tariffs on imports. 
Advancement Towards Liberalism
Ever since the legitimacy of its government, India has remained the largest democracy in
the international environment. It is a democracy with numerous political parties and
strong coalition governments. As a result of the policy reforms in 1991, India has moved
into a new era, an era of liberalization. 
Firstly, India's democracy is much different than the government of any other third world
nation in existence today. Much of public policy is actually influenced by the public.
Political parties and public activists play a major role in the creation and sustenance
of governmental political and economic policies. According to Amartya Sen in his work
entitled, India: Economic Development and Social Opportunity, "The democratic framework
of the Indian polity permits this exercise (of public influence) in ways that are not
open in many other developing economies." As a result, the major political actors in
India's international relations have been and remain the constituents of the democratic
state.
Secondly, India's new economic policy of freer trade is leading the country to better
relations with western nations, such as the United States. The Indo-U.S. relations prior
to this new liberal era have been quite sour. This tension existed due to the
nonalignment policy of India during the Cold War Era and the swadeshi temperament of the
Indian Parliament during that time. When Rao took office in 1991, he sought to mend the
relationship through liberal ideology. His plan was to increase trade between the world's
two largest democracies and, as a result, turn the existing tension into mutually
beneficial alliance.
In 1994, Prime Minister Rao and Finance Minister Manmohan Singh (architect of the
economic reform), visited Washington DC. This strategic visit attempted to relieve
tension between the two states. During their stay in the United States, Rao and Singh met
with many American businesspeople and made agreements to increase approved U.S.
investment in India from $2 billion to between $20 and $25 billion in the following few
years.
During the 1990's, there has been a continual increase of foreign investment in India by
many nations. As a matter of fact, the May 23, 1994 issue of Forbes magazine picture
India on the cover with text that said, "India may be the best emerging market of all."
Foreign interests in India have been increasing exponentially and, as a result, India has
moved far away from its swadeshi years to an age of global interdependency.
The Opposition to the Reform
The reforms of 1991 have not been widely accepted by all Indians. Much opposition to the
increasing liberalization of the Indian economy exists. This opposition has been mainly
led by the Bharatiya Janata Party (BJP). The BJP, a nationalistic, swadeshi, Hindu party,
claims that India is shifting in the wrong direction; moving towards a mirage of
liberalism only to realize that their developing nation is being exploited by
neo-imperialism.
According to the BJP Election Manifesto, when Rao entered the political scene as Prime
Minister of an almost bankrupt India, he became a subject of the Postwar Liberal Order by
accepting funds from the International Monetary Fund (IMF) and was, as a result, forced
to agree to their conditionalities. Thus, India reduced its protectionism by reducing
tariffs and barriers of trade. 
Also, as a result of Rao's policy reform, the anti-liberals argue that the nation
advanced into a state of enclave economies, where the foreign companies flourished and
the domestic ones suffered. The BJP and other swadeshi advocates claim that the "common
man" of India began to suffer due to increased prices in agricultural and food products
and decreased wages due to outside competition.
The BJP has also recognizes the hypocrisy that exists in the Postwar Liberal Order. In
referring to the United States and Japan, the party claims that, "Every nation advocates
free trade in all global forums, but, in practice, they compulsively resort to quotas,
tariffs, and ant-dumping measures to protect their national interests." 
In sum, the neo-imperialist argument of the anti-liberals claims that India is suffering
because the reforms caused a decline in the terms of trade and an increase in competition
between the large western multinational corporations and India's local, small, and
traditional corporations.
Why the Opposition is Wrong 
Neoimperialism is one of the most complex theories of international relations because
there are many aspects to fulfill the argument. The claims of the pro-swadeshi Indians
that Rao's reforms of 1991 have resulted in neoimperialism is a weak one. That is because
it does not complete the entire argument of neo-imperialism.
According to Eichenberg's lecture on Neo-imperialism on February 23, 2000, there are two
net results of the theory; these are, (1) the limitation on domestic sovereignty and (2)
underdevelopment as a result of increased dependency on the global economy. The reform of
1991 did not result in either of these two.
During the last decade, India has opened its doors to numerous and diverse foreign
investors; therefore, they do not rely extensively on a single trading partner. As a
result, India could not, as Sen puts it, become an "economic prisoner in the
international world of open exchange." Thus, domestic sovereignty remains strong as the
existence of multiple international trading partners remain. And these trading partners
will remain because of the huge market for all goods and services that exists in India
due to its increasingly large middle class. Hence, a high influx of foreign investment
from numerous diverse investors will not lead to underdevelopment, but, on the contrary,
lead to strong development of the nation's economy.
Conclusion
Contrary to the beliefs of the supporters of the swadeshi ideology, liberalization is not
hurting India, but is, in fact, the state's best option. The new domestic and foreign
economic policies of the Rao administration, not only did strengthen, but also continues
to strengthen the economy of the largest democratic nation by opening its doors to
outside investment. In doing so, the global importance and international recognition of
this future super power has increased. As a result, Indian relations with Europe, the
U.S., and the Far East through increased interdependency, ideational similarities, and
global interests in the state have begun to improve, leading to a more peaceful
international environment.
Bibliography
Bose, Sugata. Personal Interview. 30 March 2000.
"Chapter Four: Our Swadeshi Approach." BJP Homepage.
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Harris, Owen. "India, Relevant At Last?"
The National Interest. Spring 1997: 47.
Hughes, Barry B. Continuity and Change in World Politics. 
Upper Saddle River, New Jersey: Prentice Hall, 2000.
"India's Hesitation: The Trouble with Free Trade."
The Economist 3 Oct. 1998: S36.
Jha, Nalini Kant. "Reviving U.S.-India Friendship in a Changing International Order."
Asian Survey. Dec. 1994: 12.
Sen, Amartya., and Dreze, John. "Well Beyond Liberalization."
India: Economic Development and Social Opportunity. 
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