Manufacturing Trade Deficit and Industrial Policy in India

Abstract

Manufacturing trade balance in India did not worsen after the economic reforms started in 1991. In fact it improved till the early 2000s. The paper argues that this is not due to the reforms of the 1990s or the 1980s. It is rather the result of the successful growth of industries such as pharmaceuticals which the earlier planning strategy helped to develop. As a result of Economic reforms of the 1990s the structure of demand changed in favour of capital goods such as aircraft and new types of telecom equipment. But the manufacturing base did not respond appropriately. Reforms did not help the domestic manufacturing of these goods. Underdevelopment of these industries is the main reason why manufacturing trade deficit has worsened since the early 2000s. What the country urgently needs are reforms, not in the form of de-regulation as in the 1990s but reforms to design and implement a strategy for technological and industrial development in the country as in the earlier period.