Question

What was the reasons for putting barriers to foreign trade and foreign investment by the Indian government? Why did it wish to remove these barriers? -

Answer 1

Reasons for Putting Trade Barriers – Indian Government

• It is important to note that it was not just India but Governments of all developed countries, had extended protection to its domestic producers through various measures, during the early stages of development.
• After Independence, the Indian Government had imposed many barriers to foreign investment and foreign trade.
• The Indian Government imposed barriers as they believed it was important to safeguard the Indian producers from competition given by international companies.
• In the 1950s and 1960s, industries were coming up in India and external competition due to imports at that stage would not have been conducive for development of domestic industries in India.
• Hence, Indian Government permitted imports of only important items such as petroleum, fertilisers, machinery etc.

Reasons for Removing Trade Barriers – Indian Government

• Many important policy changes were done by the Government of India, starting from around 1991.
• The then Government of India had come to a decision that it was time to open competition for Indian producers with producers across the globe.
• With more global competition the domestic producers would be forced to improve the quality and performance of their products.
• International organisations which were very powerful supported this decision of the Government of India.
• Thus, to a large extent the barriers on foreign investment and foreign trade were removed.
• This meant that foreign companies could set up offices and factories in India easily, and that goods could be exported and imported easily.