IMPACT OF FOREIGN TRADE ON ECONOMIC GROWTH IN INDIA IN THE POST REFORM PERIOD: AN EMPIRICAL ANALYSIS

Abstract

Foreign trade plays an important role in the economic development of a nation. It is called engine of growth. It signifies trade between one country and other countries. Until 1991, India’s development strategy was mainly import substitution and self-reliance oriented.  India has moved from a protectionist policy toward trade liberalization since 1991. The importance of foreign trade has increased in India due to liberalization, privatization and globalization, known as LPG reforms of 1991. These policies opened the Indian economy for foreign trade. During the reform period, India’s GDP has substantially increased. Today, India is one of the fasted growing economies in the world.  Both exports and imports have also increased substantially in the post reform period in India. However, exports are lower than imports in India implying that India’s trade balance remains negative in the post liberalization period. This may be due to the fact that India is one of the largest importers of crude oil. The present paper examines the impact of foreign trade on India’s economic growth by applying regression. The study reveals that exports have significant positive impact on economic growth in India.