ISAS Working Papers

How did India effect the transition from import substituting industrialization towards trade-led growth, in the context of a plural polity? It is argued that a pro-trade executive orientation at the time of a severe foreign exchange crisis can enable the executive to initiate significant policy change, if the executive takes advantage of the agreement with the IMF. Both the pro-trade orientation and the arrival of the severe foreign exchange crisis in 1991 are explained by tracing the process from India's path of import substituting industrialization. The exogenous shock, a temporary rise in oil prices in 1990, was less significant than the ISI driven fiscal deficit, for generating the balance of payments crisis. Path reversals need not depend largely on an exogenous shock, as a path may have a built-in tendency to get reversed. The argument highlights the strategic nature of the international and domestic bargaining tables and the need to consider them simultaneously rather than additively.