Theory-informed case study examination of the current foreign policy of India.

CURRENT FOREIGN ECONOMIC POLICY OF INDIA

In terms of Purchasing Power Parity (PPP , the Indian economy is at the third rank in the world (CIA : The World Fact Book - India 2004-05 . The country has clocked Gross Domestic Product growth rate between 7 to 9 percent in recent years . Today , India has been accepted as a major emerging force in the world 's financial markets

With over a billion people to cater , the outlook for Indian economy was not always so rosy . It had to face its chunk of recessions and setbacks The

end of cold war and subsequent irrelevance of Non-Aligned Movement had brought the Indian economy to its knees by 1991 . Suddenly , the socialist policies backfired with the loss of major trade partner in Soviet Union . India , which had blocked foreign direct investment in many fields including Banking , Insurance and Telecommunications , was reduced to even mortgaging its gold overseas . India was largely and intentionally isolated from the world markets , to protect its fledging economy and to achieve self-reliance . Foreign trade was subject to import tariffs , export taxes and quantitative restrictions , while foreign direct investment was restricted by upper-limit equity participation , restrictions on technology transfer , export obligations and government approvals these approvals were needed for nearly 60 of new FDI in the industrial sector . The restrictions ensured that FDI averaged only around 200M annually between 1985 and 1991 a large percentage of the capital flows consisted of foreign aid , commercial borrowing and deposits of non-resident Indians (Srinivasan TN , 2002 ) The protectionist principals and trade-tariff barriers on import were strangulating the economy . Heavy duties on import items had made the trading partners weary of buying from India . Transnational trade follows simple logic of give and take . Unfortunately , India was not willing to expose its market to international manufacturers , insisting on protecting its local industry . The time was perfect to launch liberalization of trade policies and critical economic reforms

Dr Manmohan Singh , ironically the current Prime Minister , laid the foundations of India 's economic liberalization . He was Finance Minister in the Congress led government under PV Narsimha Rao as the Prime Minister . Manmohan Singh had impeccable credentials as an economist to turn India 's economy around . There were three major elements of the liberalization policies . First , India deregulated and liberalized all markets . Second , it vowed to increase competitiveness in all spheres of economic activity . Thirdly , the government learnt to live within its means of a strong budget constraint . All aspects of licenses and control were to be given up . The market that had proved to be the most prone to imperfection ' was that of the financial market . The reasoning behind this decision resulted from the belief that the government 's tampering in market forces led to the financial market 's inability to clear (Arjun Sengupta , 1997

The two fundamental goals of India 's adjustment policy were to enter the global economy , through the exploitation of benefits that accrue from economic independence ' and to win political maneuvering room (C .

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