Open and shut
India removed barriers to trade in goods in the 1990s. Removing protection brought global competition and raised productivity. But introducing global competition in services is harder. In certain services that are tradable, like legal or financial services, the removal of trade barriers can introduce competition and increase productivity. But these often involve complicated and time-consuming multilateral negotiations. In other services that are not tradable, like retail trade, global competition can be introduced and improvement in productivity can be achieved by opening up the sector to foreign direct investment.
Reducing protection in the market for goods, cutting custom duties on imports, and removing quotas and other restrictions on trade raises few questions today. The case for trade liberalisation in goods is well understood by now. Trade liberalisation exposes local firms to global competition. Domestic firms have to innovate, produce better products, improve their technology, and reduce costs of production when imported products enter domestic markets. Under such pressures, these firms become more productive. These productive firms become exporters. The most productive firms invest abroad. Both face further competition in foreign markets and productivity growth continues. In contrast to the pre-trade liberalisation regime, productivity in the economy is higher and keeps growing. This results in higher growth of incomes and standards of living in the country. Trade liberalisation has transformed many countries, such as those in East Asia.
India has also seen the benefits of reducing protection in goods markets.
fdi in indiapriya | 18-Dec-2012Reply | Forward fdi will create global compitition for indian firms.due to this,customer will get benefit. but after making profit from india these foreign firms will withdraw their money i.e. repatriate money to their country.
here is dear,simple economics lessongeorge | 13-Jan-2013Reply | Forward mnc diverse its investment not only for the profit making rather stability. so should our country's MNC. perfect eg. TATA acquisition of jaguar. else our country will recede to its medieval age.
One Example PleaseInquisitor | 26-Dec-2012Reply | Forward liberlisation started in early 90s that is 20 years before. Can you name one industry where the multi nationals repatriate huge sums to their home country?
Rediculous claimskumar | 13-Dec-2012Reply | Forward there are no figures provided for saying that Trade libarization is benificial for INDIA . In fact it is otherway . our workers have become jobless . Even VIP suitcase company established their factory in china and imports suitcases from china to sell in India . Now there are no orders for BHEL , because all the Powwer generation equipment is imported from China .
SuitcaseKrish | 13-Dec-2012Reply | Forward Interesting!! Why did the factory relocate to china ? Is it because the workers in India are more expensive than China? If so why are they unemployed ? Dont cheaper suitcases benefit the "Aam Admi " ?
Open and Shut fairy tale for 99 %Rakesh Manchanda | 13-Dec-2012Reply | Forward Illa Patnaik has pasted a window shop of Open and Shut fairy tale for 99 %.What she misses is that investment of 100 million usd plus lobbying investment of 25 million needs a recovery of at atleast five times as profit not in Indian currency but outflow in dollars in next few years.For more details read my article FDI-an American safety valve for India !
Are you sure?Inquisitor | 26-Dec-2012Reply | Forward I read your article and find your views against FDI strange given that you work not in India but in Africa, India expertise is good for Africa but American capital it seems is not. Now no point getting personal but I could not resist. You say that Walmart manages with 2.1 million people what it takes 12 million in India to accomplish, does that not mean that the 10 million are underemployed and adding to the cost of groceries of us Indians? I invite you to Gurgaon and challenge you to buy a dozen good quality bananas. They are all bad b'coz we do not have the expertise to store and transport bananas, if Walmart can do that they should be most welcome. the rate of return in US equities is not 5 times in few years (http://goo.gl/184ew) it less than doubles in 9 years