Before 1991, India followed import substitution and protected its domestic industries through tariffs and quotas. Which option correctly gives the reason the planners gave for this protection and the problem the reformers of 1991 saw in it?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Reason: domestic industries could not yet compete with goods of developed economies; Problem: it reduced the efficiency and competitiveness of industry
The planners protected industry because Indian industries were not yet able to compete with goods of developed economies. The reformers of 1991 found that this protection reduced efficiency and competitiveness, and manufacturing grew slowly.
The planners did fear that foreign exchange would be spent on luxury imports. That was a reason for restricting imports, not a problem caused by it. Earning foreign exchange through exports was not the aim either: no serious thought was given to promoting exports until the mid-1980s.
This question uses Indian Economy 1950-1990 and Liberalisation, Privatisation and Globalisation: An Appraisal together.
NCERT (2026-27): Indian Economy 1950-1990, 2.5 Trade Policy: Import Substitution: “… 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 was based on the notion that industries of developing countries were not in a position to compete against the goods produced by more developed economies. It was assumed that if the domestic industries were protected they would 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. Nor was any serious thought given to promote exports until the mid-1980s.” “Trade and Investment Policy Reforms: … In order to protect domestic industries, India was following a regime of quantitative restrictions on imports. This was encouraged through tight control over imports and by keeping the tariffs very high. These policies reduced efficiency and competitiveness which led to slow growth of the manufacturing sector. …” |