Globalisation, Economic Reforms & Foreign Trade Policy

📊 At a Glance

1 Globalisation & Its Advocacy

Globalisation is the increasing integration of national economies through trade, capital flows, technology, and labour movement. Its advocates argue it enables efficient resource allocation, faster technology transfer, access to larger markets and foreign capital, more competitive prices for consumers, and job creation through export-oriented industries.

2 Globalisation's Impact on India

Post-1991 opening up drove a surge in India's trade-to-GDP ratio, an IT/BPM sector boom built on serving global markets, sustained FDI inflows, and access to global capital markets. The flip side: greater exposure to global shocks — the 2008 Global Financial Crisis, the COVID-19 pandemic, and current global trade/tariff tensions have all shown how interconnected India's economy has become.

3 Fair Globalisation & the Need for a Policy Framework

The concept of "fair globalisation" (championed by the ILO) holds that the gains from global integration should be broad-based, not concentrated among capital owners and skilled workers alone. This requires deliberate policy support — social security codes, skill-development programmes, and labour standards — to ensure globalisation's benefits reach ordinary workers too.

4 Globalisation in Reverse Gear

Since the mid-2010s, the world has seen a resurgence of protectionism — Brexit, the US-China trade war, and "domestic-first" trade policies globally. India has not been immune: recent years have seen tariff tensions with major trading partners and a domestic push for self-reliance (Atmanirbhar Bharat), illustrating how globalisation's forward march can reverse under geopolitical pressure.

5 Economic Reforms: 1991 & the LPG Model

The 1991 reforms were triggered by a severe Balance of Payments crisis — forex reserves fell to barely 2 weeks of import cover. The response is remembered by the acronym LPG:

6 Economic Transformation — Real Sector

Industrial delicensing, a reduced list of industries reserved for the small-scale sector, agricultural market reforms, and a sustained push for infrastructure investment all reshaped India's "real" (production-side) economy after 1991.

7 Economic Transformation — Financial Sector

Banking reforms following the Narasimham Committee recommendations, capital-market modernisation under an empowered SEBI (including dematerialisation of shares), progressive interest-rate deregulation, and the opening of the insurance sector (IRDA Act, 1999) all transformed India's financial architecture.

8 Economic Transformation — Integration with the Global Economy

Key milestones: current account convertibility (1994), gradual and continuing capital account liberalisation, WTO membership (1995), and a steadily rising trade-to-GDP ratio as India integrated into global value chains.

9 Foreign Trade Policy: Structural Changes Since the 1990s

India's trade policy shifted decisively from import-substitution to export-promotion: tariff and non-tariff barriers were progressively reduced, the "EXIM Policy" was renamed the Foreign Trade Policy, and dedicated export zones evolved from Export Processing Zones into full-fledged Special Economic Zones (SEZ Act, 2005).

10 FTP 2023

Key FTP 2023 features: promotion of "Districts as Export Hubs," streamlined SEZ/EOU schemes, facilitation of e-commerce exports, expansion of Towns of Export Excellence, and an amnesty scheme to help exporters resolve pending duty issues.

11 FDI & FII: 2026 Trends

• Insurance FDI raised to 100% under the automatic route (DPIIT Press Note No. 1, 2026 Series, dated 9 February 2026) — covering insurers, brokers, and third-party administrators.
• Defence FDI stands at 74% automatic route (up from 49%); beyond that, government approval is needed, typically where it brings access to modern technology.
• Land-border-country investment restrictions (Press Note 3, 2020, covering China, Pakistan, Bangladesh, and other neighbours) were relaxed by the Union Cabinet on 11 March 2026.
• Cumulative FDI into India from April 2000 to March 2026 has crossed US$1.16 trillion.
• FPI (portfolio) flows turned net negative in FY 2025-26, pressured by global tariff tensions and rupee depreciation — a reminder that FDI (stable, long-term) and FII/FPI (volatile, short-term) behave very differently.

12 Economic Development vs Economic Growth

Growth is the quantitative rise in output/income (GDP); Development is the broader improvement in living standards, health, education, and equity. See our Indian Economy guide for the full growth-vs-development comparison and the Human Development Index.

13 IMF & World Bank

India is a founding member of both institutions. By convention (not formal rule), the IMF's Managing Director has traditionally been European, and the World Bank's President has traditionally been American.

14 WTO — India and WTO

The WTO was established in 1995, as the successor to GATT (1947). India is a founding member. Recurring flashpoints for India at the WTO include the agricultural subsidies debate (India's public stockholding programme for food security) and the long-stalled Doha Round (since 2001) — with India consistently pushing for special safeguard mechanisms to protect its farmers.

15 Regional Economic Co-operation

✓ Key Takeaways

• The 1991 reforms, triggered by a Balance of Payments crisis, followed the LPG model: Liberalisation, Privatisation, Globalisation.
• Real, Financial, and Global-Integration transformation together reshaped the Indian economy post-1991.
• FTP 2023 (effective 1 April 2023) is a dynamic, open-ended policy — unlike the fixed 5-year FTP 2015-2020 it replaced.
• 2026 FDI reforms: insurance FDI raised to 100% (Feb 2026), defence FDI at 74%, land-border-country restrictions relaxed (March 2026).
• FDI is stable, long-term capital; FII/FPI is volatile, short-term — and turned net negative in FY 2025-26.
• IMF = short-term BoP support; World Bank = long-term development financing — both born at Bretton Woods, 1944.
• WTO (1995) succeeded GATT (1947); India opted out of RCEP in 2019.

📝 Top 50 JAIIB-Style MCQs on Globalisation, Reforms & FTP

Test your understanding with these 50 practice MCQs, closely modelled on the pattern expected in the upcoming JAIIB IE&IFS exam — including combination-answer questions and the very latest 2026 FDI reforms. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.