Chapter 12.5, Problem 1RQ

To determine

The way in which the economy of India has been transformed since the reforms of $1991$.

Answer to Problem 1RQ

Before $1991$, India exhibited many protectionist protocols, comprising of high tariffs and other trade obstructions. Nevertheless, from $1991$, India has tried globalizing its economy, as part of which many rules were removed, tariffs were reduced, and limited foreign ownership of local businesses was permitted.

Explanation of Solution

The inflow of direct foreign investment and the volume of foreign trade in South Asia were less, relative to Southeast Asia or East Asia. The economic history of South Asia has to be known to understand its low level of globalization. The economic policy followed by India after independence was dependent on extensive private ownership along with government control in planning, resource distribution and heavy industries.

To guard the economy against the global competition, India introduced high trade barriers and higher tariffs. Such a system of mixed socialist-capitalist economy promoted industrial growth and permitted India to become almost independent. However, by the $1980\text{s}$, the issues because of such a system became obvious. The slow economic development of India implies that the percentage of its population suffering from poverty continued to exist. For getting rid of these problems, India started to shift to an open economy by $1991$. The other South Asian countries also adopted similar protocols.

India took effort in globalizing its economy by reducing the high tariffs, removing many regulations related to trade, and also by decreasing the foreign ownership of local businesses. The economic reconstructions of the Indian economy proved to be a success. When large revenue sums are produced through payments, Pakistan, Sri Lanka, and Bangladesh used to have huge labor export programs.