Discuss the Global Trading Environment of recent times and its implications for Indian Economy?


The Global Trading Environment consists of trade negotiations between nations to form agreements by giving away some of their sovereign rights for a common mutual beneficial goal.  The concept of global trading environment is based on the principle of economic co-operation between nations.

Global trading environment reflects the conceptual framework of international economic integration.

Global economic integration is the establishment of transnational rules and regulations that enhance economic trade and cooperation among countries.

The following are the levels of economic integration:

  • Preferential Trade Agreement
  • Free Trade Area
  • Common Market
  • Economic Union
  • Political Union

PREFERENTIAL TRADE AGREEMENT: Preferential Trade agreement is also known as Preferential Trade Area. This is a trading bloc which gives preferential access to certain products from the participating countries. This is done by reducing the tariffs. For example: SAFTA i.e. South Asia Preferential Trade Agreement, which grants tariff concession to member countries on the selected products.

FREE TRADE AREA: A free trade area is a trade bloc whose member countries have signed a free trade agreement. According to the agreement there is elimination of tariffs, import quotas and preferences on most goods and services traded between them. For Example: NAFTA i.e. North American Free Trade Agreement, a free trade area currently consisting of Canada, the US and Mexico.

CUSTOMS UNION: It is the third stage of economic integration. A custom union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Purposes of establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.

COMMON MARKET: A common market is a form of economic integration characterized by:

  • No barriers to trade among member nations.
  • A common external trade policy.
  • Mobility of factors of production among member countries.

European Union was the first example of successful common market, but it was an economic union sine it had additionally emerges as customs union.

ECONOMIC UNION: An economic union is a type of trade bloc which is composed of a common market with a customs union. An economic union:

  • Unifies monetary and fiscal policy among the member nations.
  • Has a common currency or permanently fixed exchange rates among currencies.
  • Employs the same tax rates and structures for all the members.

The purposes of establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.

POLITICAL UNION: A political union goes beyond the economic integration, in which all the economic policies are unified and has a single government. This represents the total economic integration and it occurs only when countries give up their national powers to develop leadership under a single government. European Union is a way towards becoming a political union.


Past and current studies indicate that, India is one of the fastest growing and most attractive economies in the world and has emerged as a desirable destination for Foreign Investment.

Since 1991 India has been operating under strict policies which restricted the economy from an International trade, this drove more protectionism than open market trade. Indian government since 1991 introduced economic reform measures, to stimulate the economy. These reform measures in fiscal, reduction on the level of tariffs based on a large number of imports, exchange rate, the use of the exchange rate as the instrument for export promotion and trade policies.

India has one of the advantages which is the stability of its political climate. The current government and party that is in power have held the political landscape in place under control and this is providing the investor-friendly environment. India has gained influence within the global economy, this is demonstrated by India position in the international institutions like (G-8, G-20) and the free trade arrears with ASEAN, EU. This is also reflected by the by India’s willingness to adopt international best practices in the production of the range of goods and services.

India has attracted U$195bn in FDI over the past 5 years. India’s GDP for 2013, valued at US$ 1.9 trillion at current prices is the 10th largest in the world. The Indian government has a target of 8 per cent during the past Five Year Plan (2012-2017), for their economic growth, this is based on the demonstrated ability to sustain national economic growth.

Economic theory and empirical evidence have clearly established the links between Trade, Productivity, and Economic growth. Countries that have large internal markets have also benefited by integrating themselves into the world economy, and thus opening up their economies like South Africa and India as one of the BRICS countries.

India is projected to be the fastest-growing economy in the world over the next several decades. Trading with different countries respectively has made India what it is regarded as trading hub of today after China in the BRICS Countries.





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