Import Substitution

Subject: Economy

Context:

Indian government has identified 12 priority sectors with potential for import substitution and boosting exports.

Concept:

Identified sectors:

Food processing, organic farming, iron & steel, aluminium& copper, agrochemicals, electronics, industrial machinery, furniture, leather & footwear, auto parts, textiles and marine products.

Import substitution

• The policy of encouraging domestic production by raising barriers against the import of goods from foreign economies.
• It is usually recommended by some economists as a way to encourage self-sufficiency, and also to aid the development of local industries.
• It was most popular in Latin America in the 20th century, and India too adopted it prior to the liberalisation of its economy in 1991.
• Critics have argued that protectionist measures like import substitution make consumers poorer in the long run, by preventing them from enjoying the benefits of free trade.
• Also, given the restrictions imposed on foreign trade, it can lead to bureaucratic corruption.