India should go in for globalization and open up to economy considerably by liberalizing the import-export regime. This would imply the conversion of quantitative restrictions to low and uniform tariffs and the use of the exchange rate for bringing about balance of payment equilibrium. Many economists and international financial institutions strongly support this policy. The policy package offered by the World Bank and IMF to the developing countries facing balance of payments problems in the eighties, including import liberalization and a more “open” trade and industrial policy as a condition for the grant of assistance.
While liberalization of imports pushed up the import bill immediately, the export sector failed to rescind at such a fast pace, because favorable impact on exports can occur only after some time when resources have moved from non-trade-able to trade-able sectors. Therefore the deficits increased. Such a programme can be undertaken only if inadequate financing for a sufficiently long period is available.
Because of the limited financing options available to India, Jalan feels that “import liberalization for the domestic market as a strategy does not seem to be a. feasible option in the immediate future”. This is because such import liberalization would have the effect of raising the ratio of imports to GPP above the historical trend: This in turn would require substantial additional net inflows of external capital in the next few years on appropriate terms. It is necessary to simplify the tariff system and reduce the administrative forms of intervention substantially. Some steps will be necessary on the import front also. Given the balance of payments constraints it will be necessary to restrain the growth in domestic demand for petroleum, fertilizers, iron and steel and edible oils which account for more than one-third of imports in values.