India’s Global Trade Potential :The Gravity model approach

The comprehensive programme of trade liberalization initiated in India in July 1991 has no doubt, led to a perceptible change in the performance of the external sector. Current account deficits have fallen sharply and reserves are accumulating. Though our share of world trade has almost doubled as the base was small it is still not commensurate with our position as the 11th largest economy in terms of the current exchange rate (4th in terms of GDP at PPP). Similarly, though our trade to GDP ratio has increased it is still far below other large economies such as China and Brazil. Clearly, therefore India needs to enhance its volume of trade with the rest of the world. This paper undertakes an estimation of India’s global trade potential and is therefore topical.