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India's Trade Integration, Realising the Potential

Author

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  • Przemyslaw Kowalski

    (OECD)

  • Nora Dihel

Abstract

This study examines economic implications of India’s trade and trade policy reforms during the period from 1990 to 2007. It first describes India’s economic growth and the composition and performance of its trade at the product and broad sector level. Next, recent reforms and the current trade policy stance are assessed and recommendations for further policy reforms are discussed. The impact of India’s openness on its total factor productivity is also addressed. The analysis shows that India has gone a long way in reducing its tariffs on non-agricultural products as well as selected non-tariff barriers and that this had a positive impact on the economy. Nevertheless, moderate to high protection still persists and adds to the hurdles faced by Indian enterprises. Overall, India’s pattern of specialisation is still affected by the pre- 1990s policies; while certain services have recently performed very well, their high reliance on skilled labour and capital means they can only address a small portion of the Indian jobless growth problem. India’s endowment structure and the recent services-dominated export profile suggest that it needs to improve conditions for the development of its manufacturing sector, with a particular emphasis—at this stage—on labour-intensive activities. The remaining goods and services trade barriers combine with domestic red tape, infrastructure bottlenecks and factor markets rigidities that restrict new entry and competition to keep India’s competitiveness, particularly in agriculture and manufacturing, at relatively low levels. In an effort to offset the remaining protection, India has developed a complex system of duty exemption schemes, special investment and establishment rules and special economic zones (SEZs) that provide incentives particularly to exporting firms. The paper argues that, while such a policy can have important demonstration effects, across-the-board reduction of trade and business barriers could have more beneficial economy-wide and export effects.

Suggested Citation

  • Przemyslaw Kowalski & Nora Dihel, 2009. "India's Trade Integration, Realising the Potential," OECD Trade Policy Papers 88, OECD Publishing.
  • Handle: RePEc:oec:traaab:88-en
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    File URL: http://dx.doi.org/10.1787/224123212531
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    Cited by:

    1. Mitra, Raja M., 2009. "IT industry in transformation: opportunities and challenges for India," LSE Research Online Documents on Economics 38353, London School of Economics and Political Science, LSE Library.
    2. repec:pal:compes:v:59:y:2017:i:3:d:10.1057_s41294-017-0025-5 is not listed on IDEAS
    3. Ana Luísa Coutinho & Maria Paula Fontoura, 2012. "What determines the export performance? A comparative analysis of China and India in the European Union," Working Papers Department of Economics 2012/35, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    4. Deb Kusum Das, 2016. "Trade Policy and Manufacturing Performance: Exploring the Level of Trade Openness in India’s Organized Manufacturing in the Period 1990-2010," Working Papers id:9073, eSocialSciences.
    5. Soumendra Nath Banerjee & Boishampayan Chatterjee, 2015. "European Union: Characterising India’s Exports to the U.S.: The Post Liberalisation Dynamics," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 3(1), pages 10-20, May.
    6. Przemyslaw Kowalski, 2008. "China and India - A Tale of Two Trade Integration Approaches," Trade Working Papers 22170, East Asian Bureau of Economic Research.
    7. Mehta, Swati, 2010. "Technology Dynamism: Analyses of Changing Structure of Trade in Organized Manufacturing Industries In India," MPRA Paper 41495, University Library of Munich, Germany.
    8. Jaejoon Woo, 2012. "Technological Upgrading in China and India: What Do We Know?," OECD Development Centre Working Papers 308, OECD Publishing.

    More about this item

    Keywords

    India; manufacturing; productivity; revealed comparative advantage; services; services trade barriers; special economic zones; tariffs; trade;

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