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Paradigm shift from closed economy to open economy

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If we take the example of India we will find India underwent a transition from a closed economy model to an open economy model in the nineties and revised its external policy from an import substitution to an export promotional strategy.

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Paradigm shift from closed economy to open economy

  1. 1. Paradigm Shift from Closed Economy to Open Economy in the Nineties:The Case of India A reflection of a deep feeling of dissatisfaction regarding the attitude towards export promotion of the country until the late fifties was verbally opposed by Dr Manmohan Singh a bright economist and a renowned scholar of Cambridge in the introduction of his most celebrated work titled “Indian Export Trends” published in the year 1964.He with obvious exasperation noted that far reaching policy recommendations regarding the strategy of India’s economic development was made on one basic assumption of export stagnation.—as if this stagnation of export is an inexplicable phenomenon. He argued that the stagnation of export was a consequence of faulty India’s economic policies and attributed this neglect of exports to two basic factors. First is the fatalistic view that export earnings cannot be raised and the next is the faulty assurance of some of the responsible economists that import substitution is the only resort to solve India’s existing problems. But finally when crisis ran deep India ultimately changed its external policy and moved from a closed to an open economy conforming with the view of Dr Singh the then Finance Minister and the architect of this new economic model. The allowing of foreign investment into the country both as FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment) not only helped the country to increase Foreign Exchange Reserves but also provided an increase in the capital stock, in the expansion of production capacities, generation of employment opportunities and bringing in superior technology and management practices which was hitherto not available to the country. This superior techno-capital base and managerial expertise in the country not only allowed the consumer to have a taste of the global brands but also helped our domestic industries to achieve greater efficiency and productivity by competing with the rest of the world. On the export front the radical effect came from the change in the basket of commodities that is exported. One of the reasons of India’s dwindling export was due to the fact that India’s export was not remunerative enough because India was basically a primary product exporting country. The core
  2. 2. competency of India lay in having a real pool of skilled and educated manpower. The issue was in providing proper facilities so that such skills can be properly utilized. Hence the highest export earners turned out to be gems and jewellery, readymade garments, leather products, software packages etc. Thus the paradigm shift from the traditional to contemporary management was observed in macro management and the urgency to adapt to changing pattern became the area of great concern. Brainware University