How does trade liberalisation affects India’s balance of trade (imports and exports)

Abstract
The steady growth of India’s economic and technological competence has attracted global attention. Many other developing countries have been in pursuit to achieve success but have failed miserably. This research proposal paper examines the effects of liberalisation on India. Since the early 1990s, India has progressively embraced liberalisation and its spontaneous yet rewarding results. It is often thought and believed that liberation scores higher results in social, economic, environmental, and political factors. It is a beneficial process for developing countries aspiring to attain economic stability and expand the market. Liberalisation allows a country to invest beyond international barriers with the unrestricted flow of revenue. Liberalisation of trade reforms attracts foreign investors which would strengthen government bureaucracy and trading policies. However, there are little known facts about the quirks and perks of liberalisation. This paper analyses the effects of liberalisation since its inception. It intends to assess and highlight how liberation has affected the lives of Indian citizens. Liberalisation is a distinctive feature that has placed India on the global map of economic and technological growth.
“Investigating the Socioeconomic Effects of Trade Liberalisation on India”
Introduction
Being one of the most densely populated countries in the world, India has always had economic challenges since the late twentieth century being a closed economy. Economic reforms in the 1990s opened various opportunities for people to invest and trade with other countries. The results of the reforms cut across the political, social, and economic aspects. According to Alessandrini et al. (2009, p.8), import and export restrictions imposed a strict limitation of tradeable goods weighing an average of 80 percent to 90 percent import-weighed tariffs. Soon after the liberalisation, the Indian government undergone reforms that would significantly impact India’s economy. Its gradual economic progress attracts the attention of researchers to analyse aspects that have enable India to stand out and be successful in trade reforms. The liberalisation in India improves some of the citizens’ lives, whereas some slowly languish in poverty and face discrimination. The reform mainly focuses on the manufacturing sector alongside policies on exports and imports of goods that significantly have impact on the economy of the country. The manufacturing sector after liberalisation performed impeccably well, encouraging more trade reforms. India has enjoyed unprecedented economic growth; however, the gap between the rich and the poor is widening. Liberalisation may be a costly investment that prompts economic growth and reduces poverty. This study will investigate the effects of trade liberalisation on India.
Aims and Objectives
The world has recently witnessed a rapid expansion of the global economy. The rapid growth of the world economy is largely attributed to the steady rise in international trade supported by trade liberalisation, globalisation, and emerging digital technologies (Siddiqui, 2016, p.424). The creation of the General Agreement on Tariffs and Trade (GATT) in 1947 marked the beginning of significant trade liberalisation on the global stage. Countries increasingly engaged in multilateral, unilateral, and regional trade liberalisation agreements saw concerted efforts to reduce trade barriers (Dix-Carneiro and Kovak, 2017, p. 2909). Developing countries and emerging economies, such as India, have increasingly opened up their economies to international trade to take advantage of the socio-economic benefits of trade liberalisation (Hye & Lau, 2015, p. 189). Although experts agree that trade liberalisation results in a significant expansion of a country’s GDP, controversy exists on its impacts on the balance of trade, wage rates, poverty, and inequality (Siddiqui, 2016, p.426). Trade liberalisation has positive effects on India’s balance of trade, wage rates, poverty alleviation, and bridging the inequality gap.
The research study aims at investigating the socio-economic effects of trade liberalisation on India.
Research Questions:
• How does trade liberalisation affects India’s balance of trade (imports and exports)?
• What are the effects of trade liberalisation on India’s wage rates?
• Does trade liberalisation significantly affect poverty levels in India?
• Does trade liberalisation bridge or widen the socio-economic inequality gap in India?
Literature Review
Imports and Exports Tariffs
The government imposed a tax on import and export of goods and services provides a great source of revenue and protecting the local industry. India is known to have a robustly growing economy since the early 1980s growing at an average rate of 6 percent annually (Alessandrini et al., 2009, p.9). Before 1991, trade tariffs were slightly high and the currency crisis instigated the need for unilateral trade liberalisation (Pavcnik, Edmonds and Topalova, 2007, p.4.). The IMF adjusted the trading programs, which substantially reduced the import and export tariffs in various sectors. The liberalisation of trade reforms ran for five years, and between 1992 and 1997, the results were felt in various sectors. It caused an increase in imports and an increased GDP from 10 percent in the late 80s to 19% in the 1990s (Pavcnik, Edmonds and Topalova, 2007, p.11). India grew from the most restrictive Asian country with high trading tariffs and a complex licensing system. Import privileges were extended to neighbouring free trade zone. Manufacturers and producers within the zones can trade without a license or importation duties (Rahman, 2004, p.37). Initially, the country would restrict specific exports or imports. Any manufacturing company that depended on imports rather than domestic producers was phased out (Topalova, 2005, p.7). Easing restrictions on import and exportation of goods drastically reduced trading tariffs. Topalova (2005, p.9) asserts that the import and export volume increased soon after liberalisation. More skilled labourers were tricked into the country as imports, and fewer Indian citizens exported their skills. While trade reforms occurred, it opened opportunities for India to join in international trade. There was a need to balance the import and export prices and demands (Panda, M. and Ganesh-Kumar, 2009, p.12).
Wage Rate Inequality
Khan and Bashir extensively discussed the available empirical evidence in the labour market (2011, p.2). Trade reforms have significant negative impacts on wages as they open domestic trade and join an international trading platform. Inequality in employment and income has increased since liberalisation reforms came to play (Joseph, 2013, p.14). Some trading reforms may intensify inequality, which would eventually affect the trade (Khan and Bashir, 2011, p.5). There is a link between prices reduction in importing products and increase in exportation. A developing economy further intensifies the gap between skilled and unskilled personnel. An increase in wage inequality contributes to domestic trades shrinking and falling out of business that requires imports. Rahman (2004, p.58) observed a steady rise in income inequality in Bangladesh. It indicates that trade liberalisation causes a rise in levels of inequality. The research further highlights the income inequality affecting rural, urban and an intensified inequality gap within income groups (Rahman, 2004, p.59). Pakistan experienced an increase in income shares of at least 20% before liberalisation. During liberalisation, the country experienced a spike in inequality and poverty (Krishna, Mitra, and Sundaram, 2010, p.29). Income and wealth inequality is more pronounced when there is an increase in insecurity, low investment, social instability, and high transaction costs (Joseph, 2013, p.7). The outcomes of trade reforms on geographical location differ. Geographical location is a factor that contributes to inequalities in general. Lack of geographical mobility such as relocation, migration increases chances of poverty and inequality (Hasan, Ranjan and Ahsan, 2012, p.7).
Poverty
Employment could be viewed as a means to end poverty and inequality. Initiating trade liberalisation reforms have a purpose to eradicate poverty. In most developing countries, trade liberalisation policies are the priority strategy used to eradicate poverty. There are many factors attached to poverty, including illiteracy and unemployment. In many rural areas, children would work in companies and industries that would expose them to change. The literacy levels in these areas slowly diminish (Edmonds, Pavcnik, and Topalova, 2010, p.4). Exposing a population to trade liberalisation slows down poverty eradication efforts. Low basic education attainment limits the poor from learning and participating in activities that would reduce poverty (Kalirajan and Singh, 2010, p.6). The majority of India’s population resides in rural areas, and agriculture is the main source of income. A larger percentage of people living in rural areas are registered below the poverty line (Marji and Kar, 2007, p. 15). Trade liberalisation could either reduce poverty or worsen the situation. Historically, India has been ranked high at the top on the global charts in a steadily growing GDP, but it has failed to eradicate poverty, unemployment, and inequality (Khan and Bashir, 2011, p.1). In an attempt to curb poverty, Indian government introduced household welfare. The programs affect every house differently depending on consumption, prices, and disposable income (Pradhan and Amarendra, 2006, p.18, Cain, Hasan and Mitra, 2012, p.7). A decrease in disposable income would require the government to transfer funds to the households. The government strategy eases a huge percentage of poverty in rural and urban areas (Pradhan and Amarendra, 2006, p.18). Research by Banga, Das, and Lessons (2012, p.12) states that increased capital income caused a decline in the poverty ratio from 45 percent to 32 percent. Some poor states in India saw a doubled growth in poverty. An increase in capital income and a rising consumption per capita is one of the driving forces behind India’s growing economy (Banga and Das and Lessons, 2012, p.12).
Research Methodology
The study will apply a secondary research method involving an online research of peer-reviewed articles relevant to the aim of the research. The online search will be undertaken on reputable academic journal databases and reliable institutional databases, such as the International Monetary Fund, World Bank, and OECD. Inclusion criteria for the articles include relevance to the research questions, recent publication, and specificity to India. The literature review will involve a systematic review of the identified and selected peer-reviewed and other scholarly articles to collect and evaluate a wide range of descriptive quantitative data to facilitate evidence-based support for answers to the research questions. The research findings analysis will involve a critical and statistical analysis of descriptive quantitative data to support well-informed inferences and conclusions on the socio-economic impacts of trade liberalisation on India.
Result Analysis
International trade-promoting organizations such as the IMF, World Bank, World Trade Organization, and OECD provide a source of descriptive quantitative data on the socio-economic impacts of trade liberalisation in member countries. Recent IMF and World Bank data on India indicates that the country’s GDP has risen steadily with an increasing level of trade liberalisation through multilateral, unilateral, and regional cooperation (Hye & Lau, 2015, p. 190). The international trade institutions also provide reliable descriptive quantitative data of the balance-of-trade, poverty, wage rates, and inequality indexes for individual countries over time. The research will apply descriptive and inferential statistical analysis to determine the cause-effect relationship and variability between the collected data on rising trade liberalisation in India and changes in balance-of-trade, poverty, wage rates, and inequalities (Goertzen, 2017, p.13). Some of the applicable descriptive data analysis methods include measures and summaries of central tendencies and variabilities. The inferential statistical methods will help determine association and correlation (Sheard, 2018, p.431).
Trade liberalisation is associated with deficits in balance-of-trade that disadvantage emerging and developing countries, like India, with fewer industrial exports than developed countries (Siddiqui, 2017, p.33). The rise in India’s GDP attributable to trade liberalisation benefits a few direct participants, and poor redistribution of the gains widens the inequality gap. Trade liberalisation is associated with insignificant poverty alleviation due to the skewed distribution of the gains in favour of the direct participants (Mahesh, 2016, p.1752). However, trade liberalisation results in improved living standards due to the availability of a variety of products sold at competitively lower prices in the global market. The easier cross-border movement of the labour force, and enhanced human capital development due to increased technical exchanges with trade liberalisation results in a steady increase in wages (Hye & Lau, 2015, p. 191).
Conclusion
Recent research indicates mixed reactions regarding the socio-economic impacts of trade liberalization on India. Trade liberalisation has positive implications on India’s trade balance, wage rates, poverty alleviation, and bridging the inequality gap. Trade liberalisation in India is associated with rising GDP, wage rates, and an increasing inequality gap. The consistent growth of sectors such as finance and banking is credited to liberalisation reforms. It has promoted open trade by reducing tariffs and eliminating export and import restrictions. The most outstanding element of India’s liberalisation is slow yet a steady progress. The economic success compels developing countries to join the multilateral, unilateral, and regional trade liberalisation agreements aiming to reduce trade barriers. Liberalisation reforms have resulted in various improvements in local and international trade. Manufacturers and producers within the zones can trade without a license or importation duties possible through trading tariff reforms. Inequality is a never-ending debate that liberalisation reforms struggle to tackle. Trade liberalisation causes a rise in levels of inequality due to the importation of skilled workers and goods. The rapidly growing economy further intensifies the gap between skilled and unskilled personnel. An increase in wage inequality contributes to domestic trades shrinking and falling out of the business market. Low income and illiteracy intensify poverty. In some of India’s rural areas, children would work in companies and industries instead of going to school.