The inward looking trade strategy followed by Indian in the few initial five year plans is also known as ______.
Show answer & explanation
Correct answer: C
Explanation
The correct answer is Option 3: Import Substitution.
- Explanation:
- During the first seven Five-Year Plans following independence (1950–1990), India adopted an 'inward-looking trade strategy,' which, in economic terminology, is referred to as 'Import Substitution.'
- Core Concept: The primary objective of this policy was to produce domestically—within India—those goods that were previously imported from abroad. For instance, instead of importing cars or machinery from overseas, domestic industries were encouraged to manufacture them within India itself.
- Protectionism: To shield domestic industries from foreign competition, the government employed two primary measures:
- Tariffs: Imposing heavy duties on imported goods to make them more expensive.
- Quotas: Setting a specific limit on the quantity of a particular good that could be imported into the country.
- Rationale: At the time, it was believed that if domestic industries were provided with protection, they would evolve over time and eventually become capable of competing at an international level.
Impact of the Import Substitution Policy:
- Positive: India's industrial base became diversified. New domestic industries emerged in sectors such as electronics and automobiles.
- Negative: Due to the absence of foreign competition, domestic industries exhibited a lack of quality improvement and innovation. Consumers often had to pay higher prices for goods of inferior quality.
Additional Information (Historical Context):
- Mahalanobis Model: The Second Five-Year Plan placed a strong emphasis on heavy industries, which served as the foundation for this policy.
- 1991 Reforms: Following the economic crisis of 1991, India abandoned this policy and adopted Liberalization, Privatization, and Globalization (LPG), thereby opening its economy to the world.
Important Question for Upcoming Examinations:
Question: In which year did India shift its policy from 'Import Substitution' to 'Export Promotion' and Globalization? Answer: 1991 (New Economic Policy).
Question: What is the 'tax' imposed to restrict imports called?
Answer: Tariff.
Question: On which model was the Second Five-Year Plan based?
Answer: P.C. Mahalanobis Model.