Trade policy, Microeconomics

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TRADE policy:

The well known economist D. H. Robertson has immortalized the role of trade in development with his famous statement that "trade is an engine of growth". The policy makers and economists in India always took seriously trade policies to attain development objectives. In fact, trade policies played a very crucial role in India's planning for industrialization.

The major instruments of trade policy:  tariffs, quotas, and subsidies. By trading environment of a country we mean the nature of existing trading relationships that the country in question maintains with various countries of the world. For example, a country may decide to close it borders so that no exchange of goods and services with other countries is possible. Or else, the country may allow inflow and outflow of goods and services between countries without any restrictions. Alternatively,  a  country may find  it desirable  to  form  trading arrangements with respect to one or a  group of countries where  all restrictions are  removed with respect to  the particular country or the group of countries but yet maintains certain restrictions with  respect to all  other countries. You have learned about such regional trading blocs. These are policy issues that a country may like to consider to attain certain aims and objectives at any given point in time. As you will understand shortly, trade policies play important roles in economic development of a country.

It turns out that with the changes of time and the structure of the economy, the nature of the desirable trade policies also changes. India has used some mixtures of the above trade policy instruments to restrict or expand its trade. India's trade policy has always been very intricately related to its development objectives.  At the dawn of India's independence, the main objective before the country was to achieve rapid economic growth and removal of poverty. Most economists and policy makers then thought that the appropriate strategy of trade policy to achieve such goal should be protectionist and hence the country had followed import-substitution strategy of industrialization (ISI) for rapid economic growth. Over the past five decades there has been a sea change in India's trade policy and what was thought to be appropriate trade

policy strategy  in the early  days of planning  has subsequently  considered being detrimental to growth and development. Thus while fifty years ago  there was a consensus  among economists  and policy makers  that an appropriate  trade policy was  one, which protected  infant  industries in the country, today there is a consensus in favor of an export oriented trade policy.


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