Trade Policy of India After Independence

What is Trade Policy?

It is the Government Policy regarding International trade

It refers to regulations and agreements that control imports and exports with other countries

What was Trade Policy of India from 1950-1990?

Till 1990, India had inward looking trade strategy

This Strategy was called Import Substitution

What is Import Substitution Policy?

This Policy aimed at replacing imports with domestic production

Example

Instead of Importing vehicles from outside India, Government encouraged vehicle industries to Produce in India

Why did Government Protect Domestic industry?

or

Why did Govt follow the Policy of Import Substitution?

Protect Domestic Industries

Govt believed that Domestic Industries were not in position to compete with goods produced by industries of

developed economies

If domestic industries were protected, they could compete with imported products in future

Prevent Foreign Exchange on Imports

Govt feared that if there were no import restrictions

People will import more luxury goods and foreign exchange will move outside India

What Steps were taken by Government for Import substitution?

Government protected domestic industries from foreign competition

Government did it by introducing tariffs and Quotas

Tariff

It means charging tax on Imports (custom duty)

This made foreign goods expensive compared to domestic goods

Quotas

Government specified the quantity which could be imported

Hence, goods cannot be imported in large quantities to make domestic product expensive

What were the Positive effects of Policy on Import substitution?

1. Contribution to GDP
   Share of Industrial Sector in GDP increased from 13% in 1950 to 24.6% in 1990
   There was 6% Growth Rate of Industrial Sector during this Period
   
   
2. Diversification of Industrial Sector
   At the time of Independence, Indian industry was restricted to cotton textile and jute|
   Later Indian industry diversified to variety of sectors like electronics, car manufacturing etc
   
   
3. Opportunity to Small Sector
   It gave opportunity for businessmen with limited capital to start business
   
   
4. Generated Employment Opportunities
   As more industries were set up, more workers and employees got hired
   Hence, it lead to increase in jobs and employment

NCERT Questions

Question 17

Explain how import substitution can protect domestic industry.

MCQ Other Books

Question 1

In the following questions, select the correct answers:

To Protect goods produced in india from imports, Government made use of :

1. Quotas
2. Tariffs
3. Export Promotion
4. All of these

Question 2

Need for import substitution policy is due to:

1. Shortage of foreign exchange.
2. Adverse Balance of Trade.
3. Devaluation of money.
4. All of the above.

Question 3

Which of the following statement is not true about the need for import substitution for Indian economy?

1. Unfavorable balance of trade.
2. Devaluation of rupee.
3. Abundance of foreign aid.
4. Shortage of essential commodities.

Question 4

In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R).

Mark the correct choice:

Assertion (A): India adopted import substitution policy during the first seven Five-year plans precisely.

Reason (R): Import substitution was to substitute the imports of our economy with domestic production.

1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
3. Assertion (A) is true, but Reason (R) is false.
4. Assertion (A) is false, but Reason (R) is true.