Inward Looking Trade Strategy !! Import Substitution Strategy !! आयात प्रतिस्थापन रणनीति

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Import Substitution Strategy
आयात प्रतिस्थापन रणनीति
Agriculture, Industry and Trade (1950-1990)
CHAPTER 3 TRADE STRATEGY OF IMPORT SUBSTITUTION
SESSION 2022-23
3. TRADE: STRATEGY OF IMPORT SUBSTITUTION
To complement the efforts of industrial development, India adopted the strategy of import substitution during the period 1950-1990. It is also called 'Inward-Looking Trade Strategy'.
(i) Import substitution implies domestic production of those goods which the economy has been importing from rest of the world. This is a strategy to save foreign exchange by restricting the volume of imports.
(ii) Foreign exchange (being extremely scarce) was to be utilised for
developmental imports (referring to import of such plant and machinery which is essential for growth and development but cannot be produced domestically, owing to the lack of technology or the lack of investment funds).
(iii) By adopting inward looking trade strategy, the government preferred to
economise the use of foreign exchange (through import substitution) rather than maximise the generation of foreign exchange (through export promotion).
(iv) Also, the government wanted to protect the domestic industry from international competition.
Import Substitution and Export Promotion Strategies
Import Substitution,is wav strategyfto save foreign exchange by encouraging domestic production of such goods which thesountry has been importing from rest of the world. Domestic industry is offered protection from foreign competition through import restrictions and import duties. Contrary to it, Export Ptomotion is a strategy to earn foreign exchange by promoting domestic exports and making domestic industry competitive in the international market.
STRATEGY FEATURES OF GROWTH STRATEGY DURING
THE PERIOD 1950-1990 AND ITS GOOD & BAD EFFECTS
(i) Public enterprises were to play a central role in the process of industrialisation.
(ii) Private enterprises were to play only a secondary role in the process of industrialisation and that too under Permit-Licence Raj.
(iii) Process of industrialisation focused on 'import substitution'. Implying that the production of such goods was to be accorded a high priority which were imported from rest of the world.
(iv) As far as possible, domestic industry was to be protected from foreign
competition.
Protection was to be offered through:
(a) heavy duty on imports, and
(b) fixation of import quotas. It was realised that protection would foster the growth of the domestic industry.
(v) Large-scale industry was to be developed with a view to building an
infrastructural base in the country.
(vi) Small-scale industry was to be developed with a view to achieving the objectives of employment and equity.
(i) Economic growth got a big push.The proportion of industrial sector in GDP increased from 13 per cent in 1950-51 to 24.6 per cent in 1990-91.
(ii) Indian industry was no longer confined merely to cotton textiles and jute; in fact, the industrial sector became well diversified by 1990, largely due to the public sector.
(iii) There was a marked diversification in the industrial sector. The then sunrise industry (electronics in particular) marked its emergence in the domestic economy.
GOOD EFFECT
(iv) Growth of large-scale industry (like Rourkela and Bhilai Steel Plants) projected an infrastructural shift in the Indian economy.
(v) Growth of SSI made a substantial contribution in achieving the objectives of growth with social justice.
BAD EFFECT
(i) In due course of time, the planners realised excessive dominance of public sector. Covering the production of certain consumer goods (which the private sector was well equipped to do) was realised as the key element of excessive dominance
(ii) Public sector monopolies gradually turned out to be a 'dead social weight'. Inefficiency, corruption, leakage and pilferage emerged as their principal characteristics.
(iii) The need to obtain license for opening of new firms or expanding the existing firms was misused by big industrial houses.
(iv) Protection of domestic industry stimulated its growth. But, it failed to achieve international standards of product-quality.
(v) Saving foreign exchange through import substitution (rather than generating it through export promotion) proved to be an inefficient policy instrument. As a result of the strategy of growth under Five Year Plans, Indian economy was able to break the barrier of economic stagnation.
India became self-sufficient in food grain production. Land reforms and HYV technology turned Indian agriculture from a stagnant and backward sector into a vibrant and growing sector of the economy.
The industrial sector was diversified. Infrastructural development became
perceptible reality.