Relation between trade and environment with
special reference to India
Shikha Rao1*,
Prof. (Dr.) Nishtha Jaswal2, Prof. (Dr.) Shipra Gupta3
[1] Research Scholar, Department of
Laws, Panjab University, Chandigarh, Punjab, India
shikha.rao90@gmail.com
2 Supervisor, Vice Chancellor, Dr.
Bhim Rao Ambedkar Law University, Jaipur, Rajasthan, India
3 Supervisor, Department of Laws,
Panjab University, Chandigarh, Punjab, India
Abstract: Since the early 1990s, India’s engagement
with globalization has profoundly reshaped its trade regime, foreign direct
investment (FDI) policies, and environmental governance framework. The
liberalization reforms initiated in 1991 marked a decisive shift from a tightly
controlled and protectionist economic model to a more open, market-oriented
system integrated with global trade and capital flows. This transformation
coincided with growing international concern regarding environmental
degradation, climate change, and sustainable development, placing India at the
intersection of competing imperatives of economic growth and ecological
protection. The present article critically examines the relationship between
trade liberalization, FDI inflows, and environmental regulation in India from
1991 to 2025, with particular emphasis on India’s evolving stance in multilateral
trade negotiations, its domestic constitutional and statutory environmental
safeguards, and its responses to international environmental agreements. The
article argues that while liberalization and FDI have contributed significantly
to economic expansion, structural weaknesses—particularly in manufacturing,
regulatory enforcement, and environmental compliance—have limited the
realization of environmentally sustainable growth. Drawing upon India’s
constitutional ethos, traditional ecological values, and contemporary policy
initiatives, the study situates India’s environmental trade discourse within
broader international debates on equity, globalization, and sustainable
development. The analysis concludes that India’s future trajectory depends upon
harmonizing trade competitiveness with robust environmental governance,
technological innovation, and equitable global cooperation.
Keywords: Trade Liberalization, Foreign Direct Investment,
Environmental Governance, Sustainable Development, Globalization, India, WTO,
Environmental Law
INTRODUCTION
India’s
economic and legal landscape underwent a structural transformation in 1991 when
the country confronted a severe balance of payments crisis that compelled a
fundamental reorientation of its development strategy. The reforms introduced
during this period dismantled decades of inward-looking, state-led economic
policies and replaced them with a liberalized regime emphasizing trade
openness, foreign investment, and private sector participation. These changes
were not merely economic in character, they also carried significant legal,
social, and environmental implications. As India integrated more deeply into
the global economy, questions concerning the environmental consequences of
expanded trade and FDI gained increasing prominence in academic, policy, and
legal discourse.
Trade
liberalization and increased capital mobility have historically generated
concerns about environmental degradation, particularly in developing economies
where regulatory institutions may be weaker and developmental pressures more
acute. In the Indian context, the expansion of industrial activity,
infrastructure development, and energy consumption following liberalization
intensified environmental stress in the form of air and water pollution,
deforestation, biodiversity loss, and rising greenhouse gas emissions.
Simultaneously, India remained committed to poverty alleviation, employment
generation, and economic modernization, thereby necessitating a careful
balancing of environmental protection with developmental imperatives.
India’s
position in global trade and environmental negotiations reflects this dual
commitment. On the one hand, India has consistently maintained that existing
World Trade Organization (WTO) rules are adequate to address trade-related
environmental measures and has resisted the expansion of environmental
conditionalities that could function as disguised protectionism. On the other
hand, India has actively participated in multilateral environmental agreements
(MEAs) and incorporated environmental protection into its constitutional and
statutory framework. This apparent tension underscores the complexity of
India’s approach to sustainable development in an era of globalization.
The period
from 2010 to 2025 is particularly significant in this regard. During these
years, India emerged as one of the world’s fastest-growing major economies, a
leading destination for FDI, and a pivotal actor in global climate
negotiations. Domestic initiatives such as the National Action Plan on Climate
Change, the promotion of renewable energy, and stricter environmental impact
assessment norms coincided with international commitments under instruments
such as the Paris Agreement. Against this backdrop, the present article seeks
to provide a comprehensive analysis of India’s trade–environment nexus,
situating it within historical, legal, and international perspectives.
HISTORICAL
BACKGROUND
Prior to the
1991 reforms, India’s trade regime was characterized by extensive quantitative
restrictions, high tariff barriers, import licensing requirements, and state
monopolies over the import and export of key commodities. Import licensing
served as a primary instrument of protection, with most goods requiring prior
government approval unless specifically exempted. The classification of imports
into categories such as restricted, limited permissible, and open general
license (OGL) reflected a deeply interventionist approach designed to conserve
foreign exchange and promote domestic industry. Canalization further reinforced
state control by granting exclusive trading rights for certain commodities to
public sector agencies.
The
liberalization measures introduced in 1991 fundamentally altered this
framework. Tariff rates were progressively reduced, quantitative restrictions
were dismantled, and import licensing was replaced by a consolidated Negative
List of Imports. Goods not included in the negative list became freely
importable, thereby enhancing market access and competition. Export controls were
similarly rationalized, and although direct export subsidies remained limited,
exporters benefited from fiscal incentives such as duty drawback schemes and
tax concessions. By the late 1990s, only a small proportion of industrial
classifications remained subject to licensing or canalization, signaling a
decisive shift toward openness.
Foreign
direct investment policy underwent an equally dramatic transformation. Before
1991, FDI was permitted only in select sectors and subject to stringent
conditions, including mandatory government approvals, local content
requirements, and technology transfer obligations. These constraints
significantly deterred foreign investors. Post-1991 reforms introduced an
automatic approval route for a growing number of industrial sectors,
simplifying procedures and enhancing investor confidence. As a result, FDI
inflows increased substantially between 1991 and the early 2000s, with major
investments originating from the United States, the United Kingdom, Japan, and
Mauritius. Between 2010 and 2025, India consistently ranked among the top
global FDI destinations, particularly in services, manufacturing, digital
infrastructure, and renewable energy.
Parallel to
these economic developments, India’s environmental consciousness has deep
historical roots. Ancient Indian texts such as the Vedas and Upanishads
articulate a worldview that emphasizes harmony between human beings and nature.
Philosophical traditions, including Buddhism and Jainism, further reinforced
principles of non-violence and ecological balance. The Isha Upanishad’s
assertion that all elements of the universe are pervaded by a divine order
underscores a normative ethic of restraint and stewardship. These cultural
foundations continue to influence contemporary environmental jurisprudence and
policy.
Modern
environmental governance in India began to take shape in the post-independence
period, particularly after the 1970s. The enactment of the Water (Prevention
and Control of Pollution) Act, 1974 and the Air (Prevention and Control of
Pollution) Act, 1981 established institutional mechanisms for pollution control
through central and state pollution control boards. The constitutional
amendments of 1976 further strengthened this framework by incorporating
environmental protection into the Directive Principles of State Policy and
Fundamental Duties. Articles 48-A and 51-A(g) collectively impose obligations
on the state and citizens to protect and improve the environment.
Despite this
robust legal architecture, enforcement challenges have persisted. India’s
federal structure assigns standard-setting functions to the Central Pollution
Control Board while delegating implementation and enforcement to State
Pollution Control Boards. Variations in administrative capacity, political will,
and resource availability across states have resulted in uneven compliance and
regulatory effectiveness. These institutional limitations have become more
pronounced with the rapid expansion of industrial and urban activity since
liberalization.
FUNDAMENTAL
ENVIRONMENTAL RESOLUTIONS
The two
fundamental contamination control resolutions in India are the Water Control
Demonstration of 1974 and the Air (Counteraction and Control of Contamination)
Demonstration of 1981. Albeit the extent of these enactments is expansive,
ecological guidelines have not been extremely successful in controlling
contamination and preventing natural damage. One of the fundamental purposes
behind this helpless execution is that there is a fundamental division of force
between the middle and the state in India, mirroring the governmental nature of
the constitution. While the Focal Contamination Control Board (CPCB) is liable
for setting ecological norms for plants and encompassing air contamination
levels, the execution of ecological norms and their authorization are
decentralized and are the obligation of the SPCB (State Contamination Control
Board). With the end goal of our factual investigation, the significant
highlight note is that no significant changes happened in ecological strategy
during the time of our examination.
Although the
advancement function has gained prominence in the Indian Economy, India has
strengthened in addition to the solid construction of administrative measures.
Also, strategic drivers, totally intent on climate protection. The 42nd
Amendment came into force in 1976 amending the prestigious Constitution. An
integral part of the mandate criteria for state fundamental duties Part-IV of
the Constitution containing Article 48-A has obligated the states to attempt
for saving and working on the climate and preserve wood and wilderness life of
the nation. Throughout Article 51-A (g), the section on major obligations, the
imposition of an obligation on each of the Indian residents “to secure and
further develop common habitats including back forests, lakes, waterways,
untamed life, and empathy for life of the animals".
GLOBALIZATION
In the developing statute and ethos of
economical turn of events, the catchphrases are "globalization"
and "value." A few types of ecological harm stretch out across
public lines to the debasement of the worldwide hall, influencing a worldwide
society. In this manner, the idea of a worldwide society includes the
requirement for worldwide points of view which, thus, for integrated
definitions of jurisprudential, social, and monetary connections. In a
worldwide measurement, the old definitions lose essence and legitimacy with the
evolving culture of humans. The improvement of advanced rational frameworks in
present-day helped approve like common liberties, the person is presently
involved as the direct recipient of law. Individuals from worldwide society, in
the last phase, make people the recipients of both state-wise and worldwide
laws. Since certain spaces of lawful freedoms and commitments are normal to
both the state and worldwide general sets of laws, one can think about it as
two circles that are concentric and the person is the focal point of the two
circles, the inner circle symbolizing law of the state and the outer circle
defining worldwide laws. In this illustration-like manner lawful regions, like
natural law, one might visualize worldwide values streaming into the substance
of state law. In such regions, worldwide viewpoints should be considered to
show up at a valid and extensive translation of individual privileges and
commitments.
VALUE
The other
watchword in the statute and ethos of manageable improvement is
"value." It is obvious that, as individuals from the worldwide local
area, nations are held together by an inevitable relationship. What's more, we
should definitely collaborate with one another. Seen according to the point of
view of equilibrated solidarity, the world local area should discover its
security in a plaguing value. Contemplations of ecological security alone
require that value be a basic rule in sewing together a steady local area.
These incorporate further developed market straightforwardness through trades
of perspectives and data concerning markets for individual products,
arrangements among makers and buyers, and remuneration components for deficits
in ware trade profit of creating nations, to empower expansion endeavors. Thus,
non-industrial countries guarantee that in any course of feasible improvement,
the current inconsistencies between countries, just as the requirements of the
present and people in the future, ought to be considered. India has an old
legacy of incorporating natural qualities, yet it is simultaneously tenacious
in recovering its kin from the servitude of neediness. Two methodologies have
been taken on by India which illustrate the strain between these two beliefs.
To begin with, to guarantee that India's improvement measures fructify in a
harmless to the ecosystem ethos, India demands the exchange of clean advances and
monetary help from created nations.
FUTURE
COLLABORATIONS
The time
frame after the Rio Conference has been worthwhile for symposia also, the
thoughts, ideas, and processes that occurred to evaluate the conference’s
import and to survey the accomplishments of emerging nations. “In an
afterwhile UNCED Workshop conducted on Climate & Advancement Strategy
Situations in Asia, famous market analysts, legal scholars, and researchers
from a few Asian nations presented over the ramifications of the Revelation of
Rio, the Agenda or Plan 21, the System Show on Environmental Change and the
Organic Variety Resolution”. Since the beginning, members of the conference
communicated frustration about the Rio interaction experiencing a shortfall in
the successful development, and there was an uncomfortable inclination that the
Rio cycle had, indeed, become lethargic. Another worry communicated by certain
members was the uncertainty of different articulations in the Rio records, for
example, the "steady and open worldwide monetary framework" in
the Rio Declaration.India is a known signatory in worldwide reports, being
innovation-driven and a solid ally to the Rio Declaration. Notwithstanding,
predominant India’s assessment is the result of the interaction at Rio that will
rely upon the expansive mission, vision, and great confidence that the emerging
nations provide for. Outfitted the predominant innovation, monetary benefit,
and monetary force, the created nations are, truly, the great variables in the
execution of the Rio guarantees. Except if they convey, there will be scant
significance to the exhausting works which finished in the Rio choices. They,
thus, should perceive that the whole Rio building has been organized on the
reason of a worldwide association, an organization imagined as much to their
greatest advantage and for their advantage for what it's worth for the
non-industrial nations. Shared need, not the foundation, portrays the Rio
interaction. Indian authority assessment acknowledges that emerging nations can
benefit from more noteworthy exchange opportunities. This, as Plan 21
recommends, will bring about a more proficient portion and utilization of
assets, accordingly empowering India to go to more powerful lengths for the
safeguarding and insurance of the climate. An appropriately organized open
multilateral exchanging framework will set out such exchanging open doors.
Notwithstanding, regardless of whether such a framework is set up, it can't
fill in as the essential gathering for treating natural concerns. Moreover,
even though significance was provided for the General Concession to Exchange
and Duties (GATT), UNCTAD, and other worldwide associations by Plan 21, India
thinks that it might be hard to underwrite the
authority of the associations question goal boards for deciding
questions identifying with ecological security. “Furthermore, despite the fact
that significance has been granted to the General Concession to Exchange and
Levies (GATT), UNCTAD, and other global associations by Plan 21, India thinks
that it might be hard to embrace and take care of these authorities of this
associations debate goal boards for deciding questions identifying with natural
security”. Critical to review is just the assurance by the GATT Question Goal
Board in the Dolphin/Fish case has not enlivened certainty, particularly in the
US, and has caused a lot of dissatisfaction among hippies. “Truth be told, a
genuine inquiry exists concerning whether Article 20 of the GATT Rules, which
accommodate exemptions for GATT limitations and denials, can be utilized to
manage matters identifying with ecological protection Article 20 should be
revised by the expansion, for case, of an arrangement explicitly permitting a
nation to force measures for assurance of the climate, the two its own and that
of the worldwide center”.
INTERNATIONAL PERSPECTIVES
From an international standpoint, the relationship
between trade liberalization, foreign direct investment (FDI), and
environmental protection has remained one of the most contested issues in
global economic governance. India’s position within this discourse has been
shaped by its dual identity as a developing economy with pressing growth
imperatives and as a responsible stakeholder in global environmental
protection. Within the framework of the World Trade Organization (WTO), India
has consistently maintained that existing trade rules—particularly the
environmental exceptions under Article XX of the General Agreement on Tariffs
and Trade (GATT) are sufficient to address legitimate environmental concerns,
provided such measures are non-arbitrary, non-discriminatory, and not disguised
restrictions on international trade. India has therefore opposed the
proliferation of unilateral trade measures justified on environmental grounds,
arguing that they undermine multilateralism and disproportionately affect
developing countries.
India’s approach to Multilateral Environmental
Agreements (MEAs) further reflects its emphasis on inclusivity and equity. It
has argued that only those environmental agreements negotiated under the aegis
of the United Nations, with effective participation from both developed and
developing countries, should form the basis for trade-related obligations. This
stance seeks to prevent the imposition of environmental standards that may not
adequately account for developmental disparities. India has also insisted that
obligations under MEAs must be explicit, mandatory, and clearly defined to
avoid interpretative overreach by international dispute settlement bodies.
Between 2010 and 2025, India’s international
environmental engagement evolved significantly, particularly in the context of
global climate governance. As a signatory to the Paris Agreement, India
committed to nationally determined contributions that balance emissions
mitigation with economic growth and poverty eradication. India’s emphasis on
renewable energy expansion, climate-resilient infrastructure, and sustainable
development pathways enhanced its credibility in international forums. At the
same time, India expressed strong reservations regarding emerging trade-related
climate instruments such as carbon border adjustment mechanisms, viewing them
as potential non-tariff barriers that conflict with the principle of common but
differentiated responsibilities.
Comparatively, India’s stance diverges from that of
developed economies such as the European Union and the United States. The
European Union increasingly integrates environmental and climate objectives
into trade agreements and domestic regulations, while the United States relies
heavily on domestic environmental enforcement combined with selective
extraterritorial trade measures. India, in contrast, continues to prioritize
multilateral consensus and developmental equity, arguing that environmental
protection should not become a pretext for new forms of protectionism. This
approach underscores India’s broader vision of globalization as a cooperative
process that must reconcile environmental sustainability with economic justice.
CONCLUSION
India’s experience with trade liberalization and
foreign direct investment since the early 1990s illustrates the complex
interaction between economic growth and environmental governance.
Liberalization has facilitated greater integration into global markets,
increased capital inflows, and technological diffusion, contributing
significantly to India’s economic expansion. However, these developments have
also intensified environmental pressures, particularly in terms of pollution,
resource depletion, and greenhouse gas emissions. While India possesses a
comparatively strong constitutional and statutory framework for environmental
protection, gaps in enforcement, institutional capacity, and regulatory
coordination continue to undermine its effectiveness.
At the international level, India’s cautious
approach toward trade-linked environmental measures reflects legitimate
concerns about equity, sovereignty, and developmental justice. The analysis
demonstrates that trade openness and FDI, in the absence of strong domestic
environmental regulation, may exacerbate ecological degradation rather than
promote sustainable development. India’s policy stance therefore reflects an
ongoing effort to harmonize its historical ecological ethos, constitutional
commitments, and international obligations with the realities of globalization.
Ultimately, the Indian experience suggests that
sustainable development cannot be achieved through economic liberalization
alone. It requires a coherent integration of trade policy, investment
regulation, environmental law, and social welfare considerations. India’s
evolving engagement with global trade and environmental regimes highlights the
need for balanced governance structures that promote growth while safeguarding
ecological integrity.
FUTURE SCOPE
The future trajectory of India’s trade–environment
nexus will depend on its ability to embed sustainability more deeply within
economic policymaking. Strengthening environmental institutions, enhancing
regulatory enforcement, and improving coordination between central and state authorities
will be crucial for ensuring compliance and accountability. Greater emphasis on
green industrial policies, sustainable manufacturing, and the adoption of clean
technologies can help mitigate environmental risks associated with trade and
FDI.
At the international level, India is likely to play
an increasingly influential role in shaping global norms on trade and
environmental governance. Constructive engagement in negotiations on
climate-related trade measures, technology transfer, and sustainable investment
frameworks will be essential to protect developmental interests while
addressing global environmental challenges. Future research may focus on
sector-specific environmental impacts of FDI, judicial interventions in
trade–environment disputes, and comparative analyses of emerging economies’
responses to climate-linked trade regulations. In this context, India’s
synthesis of constitutional values, international cooperation, and
technological innovation offers a viable pathway toward sustainable and inclusive
development.
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