A Review of India’s EXIM Policy (1992-97) and Its Impact on Agriculture

In the early 1990s, India stood at a critical crossroads. With foreign exchange reserves dwindling to barely three weeks of imports and mounting economic pressures, the country embarked on a bold journey of economic transformation. At the heart of this transformation was the Export-Import (EXIM) Policy of 1992-97, introduced on April 1, 1992-a landmark policy that would fundamentally reshape India’s trade landscape and bring far-reaching changes to its agricultural sector.

The context behind the reform 🔗

Before 1991, India’s economy was characterized by protective barriers, strict licensing requirements, and an inward-looking approach to trade. The government controlled most aspects of imports and exports through a complex web of regulations. Agricultural products could only be traded through specified channels, tariffs were prohibitively high, and economic liberalization seemed like a distant dream.

The balance of payments crisis of 1991 changed everything. India’s foreign exchange reserves had depleted so severely that the country had to airlift gold to secure emergency loans. This crisis became the catalyst for sweeping economic reforms, including the introduction of a comprehensive trade policy that would operate under the newly enacted Foreign Trade (Development and Regulation) Act, 1992.

What made the EXIM Policy 1992-97 different 🔗

Unlike previous trade policies that typically lasted three years, the EXIM Policy 1992-97 was designed as a five-year framework aligned with India’s Eighth Five Year Plan. This longer timeframe provided much-needed stability and predictability for businesses engaged in international trade.

Core principles of liberalization 🔗

The policy introduced several groundbreaking changes. It shifted from a positive list system-where only specified items could be imported-to a negative list approach. This meant that except for items explicitly restricted or prohibited, everything else could be freely imported or exported. The government substantially eliminated licensing requirements, quantitative restrictions, and discretionary controls that had previously strangled trade.

For exporters, the policy replaced the old replenishment licenses with EXIM scrips, which were essentially transferable import licenses issued based on export performance. These scrips provided exporters with significant flexibility and created a vibrant market for import entitlements.

Tariff rationalization and duty reduction 🔗

One of the most significant aspects was the dramatic reduction in import duties. The policy worked toward bringing down tariffs from astronomical levels that sometimes exceeded 300 percent. The Export Promotion Capital Goods (EPCG) Scheme, introduced during this period, allowed exporters to import machinery and capital goods at concessional duty rates, provided they met specified export obligations. Two windows were opened: one with 25 percent concessional duty requiring three times the CIF value in exports over four years, and another with 15 percent duty requiring four times the CIF value over five years.

Impact on agricultural trade 🔗

While the EXIM Policy 1992-97 primarily focused on liberalizing industrial imports and capital goods, its implications for agriculture were both direct and indirect. The agricultural sector remained relatively protected compared to manufacturing, yet important changes began taking shape.

Export opportunities for agricultural products 🔗

The policy provided special import licenses and additional incentives for exporters of agricultural and agro-based products. Farmers and agro-exporters gained better access to imported inputs, technology, and packaging materials that could enhance the quality and competitiveness of their products in international markets.

The decentralization of certain agricultural commodities from the canalized list was another significant step. Items like non-ferrous metals, natural rubber, and intermediates for fertilizers were gradually opened up, though essential commodities such as cereals, edible oils, and fertilizers remained under state control to ensure food security and price stability.

Challenges in agricultural liberalization 🔗

Despite the overall liberalization thrust, agricultural reform moved at a much slower pace than industrial reform. The government maintained protective measures to shield farmers from volatile international markets and to ensure domestic food security. Export restrictions on agricultural products persisted, and the structure of agricultural subsidies and support prices remained largely unchanged during this period.

Small and marginal farmers, who constituted over 76 percent of India’s farming community, faced particular challenges. The liberalization of input markets and the gradual exposure to international competition created uncertainty. Many farmers worried about distress sales and sought off-farm employment to supplement their income as market dynamics shifted.

Broader economic outcomes 🔗

The EXIM Policy 1992-97 contributed to a remarkable economic transformation. India’s GDP growth averaged 7 percent between 1993-94 and 1996-97, placing the country among the top ten economic performers globally during that period. Export growth was particularly impressive, averaging 20 percent annually in U.S. dollar terms during 1993-96, which helped increase India’s share in world exports from 0.41 percent in 1992-93 to 0.6 percent by 1995-96.

Foreign investment and technology transfer 🔗

The policy framework encouraged foreign direct investment, particularly in export-oriented sectors. The food processing industry witnessed rapid growth following increased foreign investment, with participation limits of up to 51 percent for foreigners and 100 percent for non-resident Indians in many segments. This influx of capital brought not only financial resources but also modern technology, quality standards, and access to international markets.

Infrastructure and support systems 🔗

The policy period saw the establishment of Export Oriented Units (EOUs) and Export Processing Zones (EPZs), which provided dedicated infrastructure for export production. These zones offered duty-free imports of inputs and capital goods, tax holidays, and streamlined regulatory procedures. Agricultural units in EPZs were allowed to sell up to 50 percent of their output in the domestic market, providing flexibility to balance export commitments with domestic demand.

Lingering concerns and unfinished agenda 🔗

While the policy achieved significant liberalization in manufacturing and capital goods imports, critics pointed out that the agricultural sector’s transformation remained incomplete. The anti-export bias inherent in India’s protective structure persisted, requiring continued export incentives and subsidies to make Indian products competitive internationally.

Trade deficits remained a concern, particularly as import growth sometimes outpaced export growth. In 1996-97, export growth slowed to just 4 percent, partly due to infrastructural bottlenecks and the need for deeper structural reforms. The government recognized that agricultural incentives, subsidy structures, and public sector enterprises required further reform to build a truly competitive economy.

Legacy and lessons learned 🔗

The EXIM Policy 1992-97 marked India’s decisive shift from protectionism to openness, from regulation to liberalization. For agriculture, it laid the groundwork for future reforms, even if the sector’s full integration into global markets would take more time. The policy demonstrated that trade liberalization, when carefully managed, could coexist with domestic priorities like food security and farmer welfare.

The subsequent EXIM Policy 1997-2002 built upon these foundations, introducing measures specifically targeted at boosting agricultural exports, including the proposal for Agricultural Export Zones. These zones aimed to organize export efforts around specific products and geographical areas, providing farmers with better access to technology, quality inputs, and international markets.

Looking back, the 1992-97 policy period represents a pivotal chapter in India’s economic history. It showed that opening up to global trade, while initially challenging, could catalyze economic growth, attract investment, and create new opportunities. For agriculture, the journey was more gradual, balancing the need for competitiveness with the imperative to protect millions of smallholder farmers who form the backbone of rural India.

What do you think? How can developing countries balance the benefits of trade liberalization with the need to protect vulnerable agricultural communities? In your view, should agricultural reforms move at the same pace as industrial reforms, or is a gradual approach more appropriate for ensuring food security and farmer welfare?

References

1. https://getuplearn.com/blog/exim-policy/
2. https://en.wikipedia.org/wiki/Economic_liberalisation_in_India
3. https://www.wto.org/english/tratop_e/tpr_e/tp071_e.htm