International Trade: The Changing Role of India Ms. Armina Fareed Lecturer- International Business Rai Business School, New Delhi

India is emerging as fast growing nation, contributing in world trade by bringing reforms in its trade practices.
This articles aims at studying the impact of liberal trade policies of India. I have discussed the impact of trade reforms that have occurred in India in the liberalization and globalization age.
The world's largest democracy, India, has emerged as a new player on the international arena. From 3.5% growth at the time independence till average growth of 6% in 2004, long closed to foreign competition, India has now opened up its market to foreign companies. The major changes brought in by the Indian government in International trade sweep away many archaic and burdensome regulations and create a business-friendly environment for domestic and international business.
A close look at the figures says India's merchandise exports have almost doubled in the last three years to $ 80 billion, and exports of software/IT-enabled services have almost tripled to $17.2 billion. The fastest-growing export sector is the outsourcing of business services called BPO or ITES. These span a huge range of services from simple call-centers to engineering and R&D services. In 2004-2005, computer software outsourcing exports 30.4% but services outsourcing exports rose even faster by 44.4%.
Traditional exports like textiles and diamonds are almost wholly Indian owned. But the big boom in auto exports owes a lot to MNC outsourcing. Suzuki and Hyundai have converted India into global outsourcing points for several of their models. Ford at one point exported twice as many cars as it exported in India. Global auto ancillary manufacturers such as Delphi and Visteon are ramping up Indian operations for meeting global needs and MICO(a subsidiary of BOSH) is investing Rs 1000 crore to make India its global source for a new range of fuel injections devices. POSCO of Korea plans a $12 billion steel plant in India, almost entirely for export.
India is emerging as a global R&D hub, for MNC's no less than Indian companies. Several drug MNC have become partners with Indian companies to develop and test new drugs. GE, Suzuki, Timken and Siemens are among those with major R&D centers.

Trade reforms brought up by the Indian Govt. has enhanced India's competitive edge. Lets have a look at the impact of trade reforms on the Imports and Exports of India. The major countries which make investment in India are United States, China and European Union.

Trade Reforms
The trade policy has been liberalized in recent years. The import licenses have been removed in the last two years. As of April 1, 1993, trade is completely free, barring only a small list of imports and exports that are either regulated or banned. Import duties have also comedown from 400 % to 50 % in 1994-95. With the coming of WTO and because of the process of liberalization and globalization trade barriers are lifted from most of the items.
These reforms have made considerable impact on Indian economy. The effects can be seen in the form of removal of trade barriers and Foreign Direct Investment
Impact of Removal of Trade Barriers
The bringing down of trade barriers promotes growth and prosperity. After Introducing economic reforms 10 years ago, India's economy has witnessed better growth rates and higher trade and Investment flows. India was one of two major global economies to have a GDP growth rate in 2001 of more than 5%.
I have taken three major trading partners of India, namely, US, China and EU. Let us discuss the impact of removal of trade barriers on these countries:
" Impact On United States
US exports to India in 2004 were valued at an estimated $6 billion (up 21% over 2003), with machine and transport equipment export is 92% and chemicals export is 18% as leading categories. Imports from India in 2004 totaled and estimated $15.6 billion (up 20% over 2003). Leading Imports from India include apparel, household goods, diamonds and jewellery. US export to India accounts for 10% of India's non-oil imports.

US officials have estimated that total lowering of barriers to trade in services could create $1.18 trillion in worldwide trade with $450 billion of that going to US firms

" Impact on China
To have a quantum jump, in economic and business relations between the two countries removal of trade barriers and cooperation in steel, oil machine and other basic industries, is required.
Other High Tech Industries like space, maritime, IT, New material technology are also taken into consideration. The facilitation of goods and services from both the sides has open doors for cordial relations.
The union minister, Kamal Nath, said, " China is poised to become India's largest trade partner in two three years, next only to US and Singapore. From $ 1 billion annual trade a few years ago, India-China trade is moving over $1 billion a month to touch $ 13.6 billion in 2004-2005".
" Impact on European Union
Before the formation of the European Union (EU), USA was the single largest trading partner for India. Many EU countries like UK, Germany and France were the major partners. After EU came into being, it has replaced USA as India's leading trade partner.
The major Industries involved in India-EU trade are steel, cement, and computer software etc. Bilateral trade between India and UK grew by over 20% during 2003. The UK attracts over 60% of India's investment in Europe. India is the UK's 17th largest export market.

Foreign Direct Investment
Foreign direct investment has risen in India because of economic reforms and the government's commitment to attracting FDI. The large market size and potential, the skilled labor force and low wage cost is the key attraction for foreign investors. FDI inflows in July 2003 were higher at $180 million, compared to $154 million in July 2002. India has received a net Foreign Direct Investment (FDI) inflow of 4233 million dollars during April 2004 to January 2005 against 3341 million dollars in the same period of the previous year
The recent moves of setting up a Foreign Investment Implementation Authority and bringing the Foreign Investment Promotion Board under the finance ministry were aimed at giving a big push to foreign investment in India.
India's cumulative FDI inflows between August 1991 and June 2003 stood at $22.2 billion excluding ADRs and GDRs. The total FDI, including ADRs/GDRs, was higher at $ 33.53 billion. Mauritius accounted for a big chunk of the FDI inflows into India, accounting for 34 per cent of the cumulative inflows between August 1991 and June 2003, followed by the US 16 per cent) and Japan (7.8 per cent).
As seen in table: 1, electrical equipment including electronics and computer software attracted the maximum amount of foreign investment of 14.49 per cent between August 1991 and June 2003, followed by telecommunications: 12.83 per cent, transportation: 10.7 per cent, fuels (including power and oil refining): 10.2 per cent, services: 8.2 per cent, chemicals (excluding fertilizers): 6.5 per cent and food processing: 3.9 per cent.

Table:1

Source: Reserve Bank of India

Conclusion
India has made tremendous growth in the growth of its economy in the past two decades.
According to a new World Bank report, India can do much more to leverage its strengths in today's knowledge-based global economy.
India is becoming a major global source of R&D; about 100 multinational corporations have already set up R&D centers in the country, leading to the deepening of technological and innovative capabilities among Indian firms.
But even so, India is still a relatively closed economy compared with other Asian economies
India needs to integrate and coordinate more the trade reforms in every sector, be it pharmaceuticals, gems and jewellery, machinery, IT etc.
Despite further liberalization of the FDI regime, India's record in attracting investment remains low, with FDI accounting for some 1% of GDP. The government has also taken various steps to improve enforcement of intellectual property rights, which should help to attract FDI

Major development in trade reforms was the removal of all import restrictions maintained for balance-of-payments reasons.

The report concludes that India's trade reform programme resulted in strong economic growth in the globalization age. The recent slowdown, although partly due to the overall slowdown in the world economy, also demonstrates the necessity of continuing these reform efforts. In particular, difficult decisions are required to redress the fiscal imbalance, by reducing subsidies, completing the process of tariff and tax reform, and stepping-up privatization of state-owned enterprises.
The efforts are needed to balance the trade and consider other parts of the world for its export and import. Major trading partners should be given importance and more of liberalizing attitude to be followed.

Bibliography

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http://www.wto.org/english/tratop_e/tpr_e/tp195_e.htm