1. Twenty years of foreign trade
The Indian economy has seen dramatic changes in the
last 20 years, thanks largely to the economic reforms
introduced by the P V Narasimha Rao government in
1991. One way of measuring that change would be to see
how India’s merchandise trade has performed in this
period.
Some changes are so obvious that you cannot miss
them. For instance, exports have grown rapidly. At $18
billion in 1991-92, they were about seven per cent of
India’s gross domestic product (GDP). By 2010-11,
exports increased to $246 billion, equivalent to 14 per
cent of GDP.
Imports, too, grew fast in this period — from about $20
billion or eight per cent of GDP in 1991-92 to $350 billion
in 2010-11, amounting to almost 20 per cent of GDP. If
India managed to keep growing and remain stable in
spite of a sharp rise in trade deficit in this period, it is
mainly because the reforms opened up the economy.
This helped the country to receive large flows of foreign
capital – both through direct investment in projects and

2. through portfolio investments in the capital markets –
and meet its balance of payments gap.
Several other changes are not too obvious and remain
hidden in the trade data. In 1990-91, machinery was the
second-largest import item, valued at around $5.83
billion and accounting for about 24 per cent of India’s
total imports of $24 billion. Twenty years later,
machinery imports are much higher, but account for only
about 11 per cent of India’s total imports. This is a sign as
much of India’s growing domestic machinery
manufacturing capacity as of the economy’s rising
demand for capital goods. Clearly, India’s import basket
has grown and diversified in these 20 years.
Two items that did not even figure in India’s import
basket in 1990-91 (indeed, they did not do so until 1993-
94) but acquired a sizeable 10 per cent share in 2010-11
were gold and silver. The economic reforms of 1991
paved the way for legal imports of gold and silver and in
the next 20 years, India has emerged as the world’s
largest destination of gold and silver exports.

3. The petroleum sector presents perhaps the most
interesting change. Petroleum imports, which used to
account for about a fourth of the country’s total imports
in 1990-91, accounted for about 30 per cent of India’s
total imports in 2010-11. That indicates how India’s
domestic oil and gas producers failed to step up domestic
output, in keeping with the rising demand at home. This
led to the sharp rise in the oil import bill.
However, that is only part of the story. The rise in the oil
import bill was also because several new refinery
capacities came up in this period and began to import
crude oil and export petroleum products. That led to a
dramatic rise in India’s petroleum product exports in the
last 20 years. From $0.52 billion (about three per cent of
total exports) in 1990-91, petroleum product exports
rose to account for more than a 17 per cent share in total
exports in 2010-11. Indeed, if exports are taken into
account, the net import bill on account of the petroleum
sector has seen modest growth and its share in the
country’s total imports has declined in this period.
On the exports front, there are a few more surprises.
Agriculture and textiles, which used to account for 42 to

4. 44 per cent of India’s total exports in the early nineties,
are no longer the key drivers of India’s merchandise
exports. The share of textiles in India’s total exports has
fallen to less than 10 per cent and that of agriculture to
seven per cent. While gems and jewellery have held
ground in the last two decades, the smartest recovery
took place in the engineering sector, a development that
has surprised even policy makers in the government.
In 1990-91, engineering goods exports were worth $2.2
billion or 12 per cent of total exports. In 2010-11, such
exports accounted for over 24 per cent. The growth rates
for engineering exports in the last few years have also
been impressive, making this the largest foreign
exchange earning sector, even ahead of software, which
fetched $59 billion in 2011.
Clearly, such growth in engineering goods exports cannot
take place just because exporting firms used some
incentives or concessions. India’s manufacturing sector
has certainly acquired a competitive edge that helps it
enter export markets with relative ease. That advantage
is not likely to go away easily. Nor should, therefore,
anyone fear that discontinuing the duty entitlement

5. passbook (DEPB) scheme would put brakes on
engineering exports. The total annual value of the DEPB
scheme is only Rs 8,000 crore, so it cannot sustain the
kind of rise in engineering exports the country saw in
recent years.
The story of India’s exports and imports in the last 20
years will undoubtedly have many lessons for the
government. As the country prepares to celebrate the
20th anniversary of India’s economic reforms of 1991, a
study of how the composition of India’s exports and
imports changed over these years is an exercise the
government’s current policy makers will find hugely
useful.