What policy was used to protect Indian industries from foreign competition, especially until the 1980s?
Show answer & explanation
Correct answer: B
Explanation
Solution: The correct answer is Import substitution and tariffs.
Explanation:
☛ After independence, India adopted an inward-looking trade strategy centered on Import Substitution Industrialization (ISI) to achieve self-reliance and protect domestic infant industries from foreign competition.
☛ This policy aimed to replace imported goods with domestically manufactured products, primarily guided by the framework of the Second Five-Year Plan (1956–1961).
☛ The protection was enforced using two main instruments: tariffs (customs duties to make foreign goods expensive) and quotas (quantitative limits on permissible imports).
☛ This protective regime, combined with rigorous industrial licensing known as the 'License Raj', governed the Indian economy until the major balance of payments crisis in 1991 prompted structural reforms.
Extra Exam-Relevant Facts:
☛ Free trade: An economic policy of not discriminating against imports or interfering with exports through tariffs or non-tariff barriers.
☛ Export-led growth: A development strategy focused on manufacturing goods for foreign markets, notably adopted by East Asian economies like South Korea and Taiwan.
☛ Industrial Policy Resolution (IPR) 1956: Classified industries into three schedules and emphasized public sector dominance in core and heavy infrastructure.
☛ LPG Reforms (1991): Marked a decisive shift away from import substitution toward Liberalization, Privatization, and Globalization under Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
Important One-Liners for Upcoming Exams:
☛ Which economic model served as the foundation for India's Second Five-Year Plan emphasizing heavy industry? → Mahalanobis Model
☛ What term refers to government-imposed quantitative limits on the volume of goods imported? → Import Quotas
☛ In which year was the historic Industrial Policy Resolution (IPR) adopted that governed state-led industrialization? → 1956
☛ Who was the Finance Minister of India during the introduction of the 1991 LPG reforms? → Dr. Manmohan Singh
☛ Which committee constituted in 1991 recommended comprehensive reforms and reductions in import tariffs? → Raja Chelliah Committee