One of the most important phenomena about the Indian economy in the 1990s was the growth of international trade. We see striking changes in the one-decade period following 1991–92. India has engaged in unilateral removals of barriers to trade, and this process has been assisted by our WTO obligations.^[6]

Through these, gross trade flows almost tripled over this period from $56.7 billion in 1991–92 to $155.5 billion in 2001–02. Expressed as a fraction of GDP, the trade-GDP ratio went up from 21.3 per cent to 33.1 per cent over this ten-year period. This was a fairly rapid pace of change for a structural parameter like the trade/GDP ratio.

A key feature of India’s experience with trade has been the rapid growth of services exports. Over this decade, merchandise exports grew by 145 per cent but services exports grew by 275 per cent.

This high growth of services exports has been based on two distinct components. In the earlier period, invisibles revenues were primarily obtained through remittances from Indians working outside India. In recent years, improvements in telecommunications have implied that many services, which were previously non-tradable, could now be produced in India as part of global production chains. Export-oriented services production in India ranges from high volume production of low-end services like accounting, all the way to services that require highly specialised and high-wage staff, like research and development. For example, research laboratories located in India by major US companies have filed for over 1,000 patents with the US Patent and Trademark Office.

The high degree of public awareness about India’s success in these IT-enabled services exports has led to a widespread perception that India is faring extremely well in services exports but has failed in obtaining growth in manufacturing exports. This perception is inconsistent with the high growth which is also seen with merchandise exports. Particularly in the last five years, growth rates of manufacturing and services exports have been rather alike.

India’s success on exports growth has made a big difference to the overall outlook on the external sector. We began the decade of the 1990s with a BOP crisis. Today, India is widely seen as having an extremely strong position on the external sector. This was achieved through several elements: currency depreciation, export buoyancy, and policies of avoiding foreign currency debt. Our foreign currency reserves are now roughly as big as our external debt, so there can be little question of a BOP crisis shaping up.