The Role of the External Sector in India’s Development Strategy: Implications for MTN

This chapter analyses India’s position in MTNs and argues that this has been determined largely by the development needs of the country and its small size in international trade. The country’s underdevelopment has meant imperfect market structures and limitations on the applicability of conventional instruments of fiscal and monetary policy and income transfers. This has resulted in greater government involvement in certain aspects of economic management and use of QRs. The chapter argues that the basis for the Indian government’s policies seems to be that while historical experience suggests that protection can be excessive there is merit to the infant industry argument. Efficiency and growth can best be achieved by competition in world markets and preferential market access can encourage firms to enter the export market. Moreover, the application of uncertain import restriction measures by developed countries can inhibit the development of export consciousness. The chapter suggests that improved foreign exchange earnings are likely to result in import liberalization so that there is de facto reciprocity, and insistence by developed countries on de jure reciprocity seems to be more due to domestic political factors.