India must return to a more liberal trade policy regime: Prof. Arvind Panagariya

A discerning audience from across the globe, interested in topics of international trade and economics, participated in an engaging discourse on Friday, March 19, 2021, as one of the leading global thinkers on trade policy delivered India Exim Bank’s 36th Commencement Day Annual Lecture (CDAL). Prof. Arvind Panagariya, Professor of Economics and the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University spoke on the topic India’s Trade Policy: Past, Present and Future. 

Presenting a historical perspective, Prof. Panagariya said that at independence, India chose a policy of self-sufficiency whereby it set the objective of independence from world markets for the sale of what it produced and purchase of what it needed. Pursuit of this objective alongside that of building a socialistic pattern of society in which the state would play progressively greater role in the production activity and the allocation of private investments would be determined by priorities set by the national government instead of being guided by profit opportunities led to economic inefficiencies. 

He remarked that from 1950 to 1990, India lost out the race for prosperity to such countries as South Korea, Taiwan, Singapore and eventually China.  In 1991, India finally broke away from its past and unleashed an era of trade liberalization and pro-market reforms. The change produced handsome results with growth accelerating first to 6% and then, beginning in 2003-04, to 7.5% on a sustained basis.

Commenting on the present international trade policy of India, Prof. Panagariya said that India harbours the ambition to achieve double-digit growth and has undertaken some very difficult reforms to achieve this ambition. Yet, in trade policy, it has turned inward once again emphasizing on import substitution.  This switch in trade policy threatens to undo some of the gains expected from the difficult reforms it has undertaken and dent its ability to achieve double-digit growth.

Looking to the future, India must return to a more liberal trade policy regime if it is to succeed in achieving its ambition to bring genuine prosperity to most of its people in less than two decades. Otherwise, like many early industrial economies, such as the United Kingdom, Germany, France and the United States, Indians will have to wait a lot longer to break out of its current low per-capita income.  

Moderating the Lecture, India Exim Bank’s Managing Director, Mr. David Rasquinha said, “Starting in 1986, CDAL has today evolved into a very important public Lecture by an eminent economist on a relevant topic related to economics or international trade. Due to the pandemic, CDAL was organized in the virtual format this year which took it to a larger number of audiences from many countries.  Many luminaries have delivered the Lecture in the past. The last three speakers at CDAL were Prof. Gita Gopinath (Professor at Harvard University and presently Chief Economist at IMF, in 2018), Prof. Abhijit Banerjee (Professor at MIT, in 2019) and Prof. Helene Rey (Professor at the London Business School, in 2020). It is indeed a privilege for us that Prof. Panagariya could deliver the 36th CDAL, on a topic which is becoming increasingly relevant, especially for the policy makers.”

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