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Top1. Introduction
India’s trade direction changed since 1991, the evident rise in the trade share with U.S. was seen. Historically India has been self- sufficient on the terms of trade earlier to 1990s, the strict government focused particularly on high tariff rates and bewildered on administrative restrictions and licenses. After 1991, government introduced trade policy regime including reduction in import tariffs, decanalisation and removal restrictions on import. There was radical change observed by reducing the tariff and non-tariff and introduction of exchange rate regime which further strengthened the India’s trade energy. (Goldar, 2002; Topalova & Khandelwal, 2011 and Mitra, Sharma, & Ve, 2014). Also, India experienced growth in trade but due the crisis happened in U.S. has discouraged the growth of trade flow in India. Does exchange rate volatility discourage the bilateral trade of import between India and U.S.? To lay out this, this study is an attempt to analysing the impact of exchange rate volatility on import at disaggregates level which is industry level.
The reverberation of valuation on economic performance, international trade. There are commodious supporting literature on trade flow. The voluminous benefaction by Clark, (1973) and Peter Hooper, (1978) underline theory effectively. However, the analysis in this matter has always been not known authoritatively (Jerry G. Thursby, (1987) and Grauwe, (1988)) from their perspective of work, the evidence have negative relationship between exchange rate risk and import of the nation. As observed over time, trade either its import or export elasticities, it remain unchanged and more of increasing elasticities and undertaking relative prices it further ameliorate the trade balance. Where, Williamson (1983), nonetheless mentioned that increase in prices of import more of due to the devaluation may lead to high price costing in the domestic goods. According to literature, the currency devaluation do effect the trade through different channels one of which is depreciation in real exchange rate. This create a positive turn out as competition in domestic market increases also improving the trade balances. It has develop an interest understanding to measure the effect of exchange rate on trade between two countries. Exchange rate volatility has always been inordinately sensitive variable; its extended deviations of currencies from their balanced level repeatedly press costs on the economy. Indian economy post liberalization has witnessed unexpectedly rise in import. Undertaking India’s case the tariff levied on import has decreased from 87% to 45% during pre-liberalization to post liberalization era in 1987 to 1994 (Sharma & Pal, 2019). The reverberation of exchange rate fluctuations on trade holds a large accumulation of studies. Nevertheless, many findings have measured on the trade across border of exchange rate volatility mainly focusing export and ignored the import. Unlike previous studies, this study offers supporting evidence of volatility of real exchange rate impacting import. Therefore, this paper offers first-hand evidence, to best of knowledge, in Indian context which explains the association of import at industry-level between India-U.S.