5. (d) Critically evaluate India's foreign trade since independence and identify constraints in India's Exports Growth.

Evolution of India's Foreign Trade Since Independence

India's foreign trade trajectory can be broadly divided into two major phases:

1. The Protectionist Era (1947-1991)

Immediately after independence, India adopted an import-substitution industrialization (ISI) strategy, characterized by high tariffs, import quotas, and stringent controls. The primary objective was to protect nascent domestic industries and achieve self-reliance, influenced by a blend of socialist planning and a desire to overcome colonial economic dependence.

• Volume: Trade volume remained relatively low, with slow export growth in the initial decades. For instance, India's total trade increased from approximately US$2.5 billion in 1950 to about US$43 billion in 1990-91.
• Composition of Exports: Dominance of traditional primary commodities such as agricultural products (tea, coffee, spices, jute, raw cotton) and raw materials. Manufactured goods constituted a smaller share, although there was a gradual shift towards some light manufactured items by the 1980s.
• Composition of Imports: Primarily consisted of capital goods, industrial raw materials, and food grains (due to domestic shortages in the initial decades).
• Direction of Trade: Initially concentrated with developed economies, particularly the UK, but gradually diversified to include Eastern Bloc countries and some developing nations.
• Critical Evaluation: While ISI fostered a domestic industrial base, it led to inefficiencies, lack of competitiveness, technological obsolescence, and a widening trade deficit. The "Hindu rate of growth" (average annual GDP growth of 3.6% in the first three decades) and recurrent balance of payments crises (culminating in 1991) underscored the limitations of this inward-looking approach.

2. The Liberalized Era (Post-1991)

The economic reforms of 1991 marked a watershed moment, ushering in an era of liberalization, privatization, and globalization. Trade policy became more outward-oriented, with a focus on export promotion and integration into the global economy.

• Volume: India's foreign trade witnessed a significant surge. Total trade, which was US$43 billion in 1990-91, grew to US$620 billion by 2010-11. By FY 2024-25, India's total exports reached an all-time high of $824.9 billion, a 76% increase from 2014-15.
• Composition of Exports: A remarkable diversification has occurred. Capital-intensive and knowledge-intensive goods have increasingly replaced labor-intensive commodities.
  • Rise of Manufactured Goods: Engineering goods, pharmaceuticals, chemicals, and refined petroleum products became prominent. India transformed from a crude oil importer to a significant exporter of refined petroleum products.
  • Emergence of Services: Services exports, particularly IT and BPM, have seen exponential growth, making India a global leader in this sector.
  • Traditional Exports: While still present, their share has relatively declined.
• Composition of Imports: While petroleum products and gold remain significant, there has been a shift towards high-tech equipment, industrial inputs, and intermediate goods to support manufacturing and infrastructure development.
• Direction of Trade: Diversified significantly, with the US, UAE, China, Netherlands, and Singapore emerging as major trading partners. China has recently surpassed the US as India's largest trading partner in FY 2023-24.
• Critical Evaluation: Liberalization led to higher economic growth, greater efficiency, and better integration with global value chains. However, India has consistently faced a trade deficit (e.g., $41.68 billion in October 2025, a record high), mainly due to robust import growth. Concerns about protectionist tendencies post-2018 (e.g., opting out of RCEP and 'Atmanirbhar Bharat') and a relatively low export-to-GDP ratio compared to other large economies persist.

Constraints in India's Export Growth

Despite significant progress, India's export growth faces several persistent constraints:

1. Inadequate Infrastructure and High Logistics Costs

• Logistics Inefficiency: India's logistics costs, though improving, have historically been higher than global benchmarks, making Indian goods less competitive. While legacy estimates were 13-14% of GDP, the DPIIT/NCAER methodology estimates it at ~7.97% of GDP in FY2023-24.
• Poor Connectivity: Bottlenecks in ports, roads, railways, and warehousing lead to delays, higher inventory costs, and reduced reliability of supply chains.
• Digital Divide: Despite initiatives, many smaller exporters face challenges in adopting digital tools for trade facilitation.

2. Regulatory and Procedural Complexities

• Ease of Doing Business: While improving, exporters still face bureaucratic hurdles, complex documentation, and multiple compliance requirements.
• Customs Procedures: Delays in customs clearance and cumbersome processes at borders add to transaction costs and time.
• Trade Policy Instability: Frequent changes in export-import policies or incentive schemes can create uncertainty for businesses.

3. Limited Diversification and Competitiveness

• Product Concentration: While the export basket has diversified, certain sectors like petroleum products, gems & jewelry, and engineering goods continue to dominate, making overall exports vulnerable to global demand fluctuations in these specific areas.
• Lack of Global Value Chain Integration: India's participation in global value chains (GVCs) is still lower than many East Asian economies, limiting opportunities for value-added exports.
• Quality and Standards: Challenges in meeting international quality standards, certifications, and compliance requirements in certain sectors hinder market access.

4. Global Headwinds and Protectionism

• Slowing Global Demand: Weak global economic growth and subdued demand in major markets (e.g., EU, US) directly impact India's exports. Recent data from October 2025 shows export growth in only five of India's top 20 destinations, with overall shipments falling 11.8%.
• Rising Protectionism: Increased tariffs and non-tariff barriers (NTBs) by trading partners, geopolitical tensions, and trade wars (e.g., US tariffs on labor-intensive goods) affect market access and competitiveness, particularly for MSMEs and labor-intensive sectors like textiles.
• Geopolitical Disruptions: Conflicts and supply chain disruptions add to logistics costs and uncertainty.

5. Access to Finance and Credit

• High Cost of Credit: Small and Medium Enterprises (SMEs), which are crucial for exports, often face challenges in accessing affordable export finance.
• Risk Coverage: Inadequate export credit insurance and guarantee mechanisms can deter exporters from venturing into new or riskier markets.

6. Supply-Side Constraints

• Manufacturing Competitiveness: Indian manufacturing often struggles with economies of scale, outdated technology, and lower productivity compared to global competitors.
• Raw Material Dependency: Dependence on imported raw materials and intermediate goods (e.g., Active Pharmaceutical Ingredients for pharmaceuticals) makes exports vulnerable to international price volatility.
• Skill Gaps: Shortage of skilled labor in certain advanced manufacturing and technical sectors.

Government Initiatives to Boost Exports:

The Government of India has undertaken several measures to address these constraints and boost exports:

• Foreign Trade Policy (FTP) 2023: Focuses on taking forward the 'Districts as Export Hubs' initiative and establishing e-commerce hubs.
• Production Linked Incentive (PLI) Scheme: Launched to promote domestic manufacturing and enhance India's self-reliance and global competitiveness across 13 key sectors.
• National Logistics Policy (NLP) 2022: Aims to reduce logistics costs to global benchmarks by 2030, improve India's ranking in the World Bank Logistics Performance Index (LPI), and leverage technology like the Unified Logistics Interface Platform (ULIP).
• PM Gati Shakti National Master Plan: A digital platform for integrated planning and coordinated implementation of infrastructure connectivity projects, aiming to improve connectivity and make Indian businesses more competitive.
• NIRVIK Scheme (Export Credit Insurance Scheme): Aims to enhance loan availability and ease lending for exporters by providing up to 90% coverage of principal and interest.
• Export Promotion Mission (EPM): Approved with an outlay of ₹25,060 crore for FY 2025-26 to FY 2030-31, consolidating fragmented schemes into an outcome-based framework.
• Bharat Trade Net (BTN): A digital public infrastructure platform to digitize trade documents, streamline compliance, and reduce transaction costs.