Against the backdrop of rising recognition of the importance of economic growth and the important role played by exports in facilitating growth, the Ministry of Commerce convened the Committee on Trade Policies in 1984 to be chaired by Abid Hussain, Commerce Secretary. Members included P. K. Kaul (Finance Secretary); S. S. Sidhu (Secretary, Department of Industrial Development); Arjun Sengupta (Special Secretary to the Prime Minister); M. Narasimham (Principal, Administrative Staff College of India); C. Rangarajan (Deputy Governor, Reserve Bank of India); P. C. Jain (Chief Controller of Imports and Exports); S. V. S. Raghavan (Chairman, Minerals & Metals Trading Corporation of India); and Deepak Nayyar (Economic Adviser, Ministry of Commerce). The committee painted a sobering picture of India’s export performance despite improvements since the 1970s. While exports in 1970s grew at an impressive 6.3 percent per annum in volume and 15.9 percent in value, India’s share in global exports plummeted from 2 percent in 1950 to a meager 0.42 percent by 1980. Exports eligible for the Cash Compensatory Support (CCS) scheme, designed to offset unrebated indirect taxes, increased from around 20 percent of total exports in 1973/74 to over 40 percent by 1983/84, with CCS rates typically ranging from 5 to 20 percent of the value of goods at the point of shipment. However, this growth was meager compared to growth in rapidly industrializing nations.
The committee identified domestic factors as major constraints, with exports constituting only 5–7 percent of GNP. High input costs and low productivity reduced competitiveness, while rapid population growth and robust domestic demand limited export surpluses. Supply-side bottlenecks (like inadequate infrastructure), nonavailability of inputs, complex regulations leading to delays, and nonprice factors such as quality issues and marketing weaknesses further hindered export performance.
To address these challenges, on the export front, the committee suggested rationalizing the duty-drawback system to provide complete and expeditious reimbursement of taxes on inputs used for exports. The CCS regime was to be strengthened by exempting it from income tax and rationalizing the multiplicity of rates. Fiscal concessions, such as exempting 50 percent of export profits from income tax, were proposed to improve profitability.
For imports, the committee advocated gradually transitioning from quantitative restrictions to tariffs while de-escalating effective protection levels over five years through preannounced schedules. It recommended initially placing capital goods and raw materials on Open General License with high tariffs, which could be reduced over time. Selective import substitution focusing on bulk items and sectors with a comparative advantage was encouraged, subject to domestic resource-cost considerations. Institutionally, the committee called for reorienting export-promotion councils toward product and market development, harmonizing export-credit and insurance mechanisms, and moving toward self-certification for quality control. It emphasized increasing competition by removing barriers to entry, relaxing capacity licensing, and providing liberal access to technology imports. The report recognized the role of technology embedded in capital goods as well as the role of knowledge transfer.
Based on the committee’s recommendations, India implemented a trade policy for 1985–1988 aimed at increasing flexibility for exporters. The policy focused on reducing administrative delays and simplifying schemes, significantly decreasing canalized imports and amending related procedures. A prudent approach to the promotion of export promotion zones was taken by the Government of India, and accordingly, a few zones came into existence. It abolished automatic licenses, shifting most goods to the Open General License list. A pass book was introduced, to record specifics of export product and the content of imports in the product, allowing manufacturer-exporters easy access to duty-free inputs for export production. This marked the first phase of liberalization aimed at import-led export growth, resulting in rising import intensity after 1985.
The report sought to enhance India's export competitiveness by addressing domestic constraints like high input costs, supply bottlenecks, and regulatory complexity, while recommending rationalization of export incentives and a gradual shift toward a tariff-based import regime. Its proposals laid the groundwork for a more liberalized trade policy, emphasizing efficiency, institutional support, and export-led growth.
