Indian Trade Liberalization Essays - Indian Independence Movement

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 Indias 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. Raos administration implemented major changes in banking, interest rates, and the ability to fully convert rupees (Indias currency) in trade transactions. But most importantly, towards the end of 1991, Rao opened Indias 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, Indias 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 Indias international relations have been and remain the constituents of the democratic state. Secondly, Indias 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 worlds 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 1990s, there has been a continual increase of foreign investment in India by many nations. As a