The industrial policy that we adopted
was closely related to the trade
policy.In the first seven plans, trade
was characterised by what is
commonly called an inward looking
trade strategy. Technically, this
strategy is called import substi
tution. This policy aimed at replacing
or substituting imports with domestic
production. For example, instead of
importing vehicles made in a foreign
country, industries would be
encouraged to produce them in India
itself. In this policy the government
protected the domestic industries
from foreign competition. Protection
from imports took two forms: tariffs
and quotas.
Tariffs are a tax on imported goods; they make imported
goods more expensive and discourage
their use. Quotas specify the quantity
of goods which can be imported. The
effect of tariffs and quotas is that they
restrict imports and, therefore, protect
the domestic firms from foreign
competition.
The policy of protection is based
on the notion that industries of
developing countries are not in a
position to compete against the
goods produced by more developed
economies. It is assumed that if the
domestic industries are protected
they will learn to compete in the
course of time. Our planners also
feared the possibility of foreign
exchange being spent on import of
luxury goods if no restrictions were
placed on imports.
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