Report

16 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
maintained one of the most restrictive trade regimes in
the world. It imposed a system of high tariffs and stiff
NTBs such as licensing and quotas, which virtually
closed the economy from the international trade arena.
Far from viewing foreign trade as an engine of economic
growth, Indian planners sought to minimize import
demand and viewed exports mainly to generate the
foreign exchange earnings to meet that part of the
import bill not covered by external assistance. They
created an elaborate administrative regulatory
machinery to control both imports and exports. As a
consequence, both exports and imports as a percentage
of GDP declined. The 1980s can be viewed as a period
of growing uneasiness with the policies of excessive
protectionism. The import needs became stronger as
the industrial growth showed an accelerating
trend. Also, it was realised after the first oil shock
of 1973 that India had to step up exports to finance
the rising import bill on account of an increase in oil
prices.
The 1980s is marked by a clear shift in the trade
strategy towards reduction of quantitative restrictions
on imports. Exports and imports as per cent of GDP
showed an upward trend in 1980s. While the signs of
liberalised trade policy became visible in the latter half
of the decade, it was only in 1991 that the country
embarked on a truly liberalised trade policy with a short
negative list of exports and imports and with quantitative
controls over imports withdrawn for all, except
consumer goods. The reforms included liberalisation
of import licensing, reduction in tariffs, abolition of
cash subsidies for exports, devaluation of the rupee,
introduction of partial convertibility of the rupee on
the current account and later full convertibility of the
rupee on the current account. As a result exports as a
per cent of GDP rose from over 6% level to over 8% in
1990s (Table 1.11). The export momentum slowed
down since 1996–97 due to both global and domestic
factors, however, it again picked up in 2001–02. There
was a significant increase in the share of imports
alongside except for 1991–92 due to the severe import
curbs introduced after the payment crisis of 1991–92.
It can be safely asserted that India’s trade has been
open now compared to that of the pre-reform period,
as the trade to GDP increased from 14.4% in 1980 to
22.8% in 2000. However, when it comes to an international
comparison, India’s trade to GDP ratio is low.
For example, in the People’s Republic of China, share
of trade rose from 12.6% in 1980 to 37% in 1999.
India is an active member of WTO. Although India
has been a strong supporter of multilateral
liberalisation, it has also sought out RTAs in recent
years. Since signing the Bangkok Agreement in 1975,
India has signed trade agreements mainly with other
developing countries such as the global system of trade
preferences (GSTP), SAFTA, and an FTA with Sri
Lanka. India has also signed a comprehensive economic
cooperation agreement (CECA) with ASEAN,
European Union, Japan and Korea.
The Maldives
Maldives is a small island developing nation in the
Indian Ocean. Since its independence in 1965, the
Maldives has achieved commendable economic development.
While the country was one of the poorest in South
Asia in the early 1970s, it now has the highest per
capita income in the region. Maldives per capita GDP
rose from US $266 in 1980 to US $995 in 1990, the
highest as compared to other South Asian economies.
It recorded the per capita GDP of US $2328 in 2005.
The country’s economy is dependent on fishing,
tourism and foreign imports. Tourism is the largest
industry in Maldives, accounting for 20% of GDP and
more than 60% of foreign exchange receipt. It powered
current GDP per capita to expand 265% in the 1980s
and a further 115% in 1990s. Fishing is the second
leading sector in Maldives. While the contribution of
fisheries has been declining over time, it remains vital
to the economy, because it is the main provider of food
items and employment in a number of atolls.
Agriculture and manufacturing play a minor role in
the economy, constrained by the limited availability of
cultivable land and shortage of domestic labor. Most
staple foods are imported.
During 1996–98, the Maldives’ economy grew by
8–9% as a result of favourable development in
transportation, communication, utilities, tourism,
fisheries, and manufacturing, particularly garments. In
1999, growth was estimated at 8.5% (Table 1.12). This
Table 1.11 Exports and Imports as % of GDP, 1980–2003
Year 1980–81 1990–91 1995–96 1996–97 1999–2000 2001–02 2003–04
Exports as % of GDP 4.9 5.8 9.1 8.9 8.4 9.4 10.8
Imports as % of GDP 9.5 8.8 12.3 12.7 12.4 12.0 13.3
Source: Economic Survey, various issues, and Department of Economic Analysis and Policy, RBI.