Explain how import substitution can protect domestic industry.
Explain how import substitution can protect domestic industry.
In the first seven Five Year Plans, India had an inward-looking strategy. This strategy aimed at replacing or substituting imports with domestic production i.e., instead of importing goods made in a foreign country, industries would be encouraged to produce them in India itself. This concept is referred to as import substitution. Thus, the government protected the domestic industries from foreign competition through this policy.
Protection from imports took two forms:
(i) Tariffs i.e., a tax on imported goods to make imported goods more expensive and thus discourage their use.
(ii) Quotas- which limited the quantity of imports.
The policy of import substitution provides protection to domestic industries from foreign competition. The rationale for this policy is that industries of developing countries like India are not in a position to compete against the goods produced by developed economies. It is assumed that if the domestic industries are protected in the infant stage, they will gain strength by being able to produce on large scale, and through experience, they will be able to compete globally in good time.
In the first seven Five Year Plans, India had an inward-looking strategy. This strategy aimed at replacing or substituting imports with domestic production i.e., instead of importing goods made in a foreign country, industries would be encouraged to produce them in India itself. This concept is referred to as import substitution. Thus, the government protected the domestic industries from foreign competition through this policy.
Protection from imports took two forms:
(i) Tariffs i.e., a tax on imported goods to make imported goods more expensive and thus discourage their use.
(ii) Quotas- which limited the quantity of imports.
The policy of import substitution provides protection to domestic industries from foreign competition. The rationale for this policy is that industries of developing countries like India are not in a position to compete against the goods produced by developed economies. It is assumed that if the domestic industries are protected in the infant stage, they will gain strength by being able to produce on large scale, and through experience, they will be able to compete globally in good time.
