Beginning mid-1991, the Government of India introduced a series of reforms to liberalize and globalize the Indian economy. Reforms in the external sector of India were intended to integrate the Indian economy with the world economy. India's approach to foreign trade was, not merely to earn foreign exchange, but to use it as an effective instrument to stimulate greater economic activity. This article describes and examines the changes in the pattern of India's foreign trade since 1975, with focus on post-1991 developments.

Foreign trade plays a paramount role in the economic development of a country. It has assumed enormous importance and significance in modern days because of the growing specialization, territorial division of labor and consequent interdependence of the world economies. Foreign trade heralds improvements in the production techniques, ushers in economic development and is considered as an engine of economic growth. India opened up its economy in 1991 and has been reaping the benefits of globalization. However, continued reforms are essential for sustaining high growth, steps to widen up the economy and to facilitate accelerating faster economic transformation. India has trade relations with other countries because it gains by doing so. The global strategic and political environment has been changing rapidly in the recent years. Until recently, India was yearning for self-reliance within the ambit of a controlled, centrally planned and closed economy.

The consumption of every commodity is maximized by international allocation of resources. Secondly, there will be greater international equality in real incomes, factor prices and consumption levels and, consequently, in welfare levels across countries of the world. The relative wage levels would increase in a labor abundant country and fall in a capital abundant country. This would equalize real wages of labor in all the trading nations. Consequently, the classical and neo-classical economists considered free trade as the first best policy to promote growth. Thus as long ago as in 1940, the famous Cambridge Economist, Sir Dennis Robertson, characterized trade as an `engine of growth'. According to him, foreign trade accelerates economic growth of a country by bringing in new ideas, new technologies and new tastes, which, in turn, stimulate innovation. The under-utilized natural resources and unutilized manpower are put to better use as a result of trade. Studies of developed countries like those of UK, US, Germany and Japan that were made by Michaely (1977), Heller and Porter (1978), Balassa (1978), Ram (1987), Feder (1983) clearly brought home the fact that an increase in the volume of exports accelerated economic growth.

Treasury Management Magazine, Foreign Trade, Economic Development, Economic Transformations, Natural Resources, Globalization, Post Liberalization Periods, Pre-liberalization Periods, Economic Planning Process, Indian Economy, Economic Environment.