Question

Read the following Assertion (A) and Reason (R) carefully and choose the correct option.

1. Assertion (A): India adopted import substitution during the planning era.
2. Reason (R): This was to protect infant domestic industries from foreign competition.

• A. Both A and R are true and R is the correct explanation of A.
• B. Both A and R are true but R is not the correct explanation of A.
• C. A is true but R is false.
• D. A is false but R is true.

Answer 1

Answer:

A. Both A and R are true and R is the correct explanation of A.

Import Substitution Strategy in India

• Historical Context: Following Independence, the Indian government adopted a strategy of Import Substitution Industrialization (ISI). This was prominently featured in the Second Five-Year Plan (1956–1961), also known as the Mahalanobis Model, which prioritized the development of heavy industries.
• Core Mechanism: Import substitution involves replacing foreign imports with domestic production. The government aimed to achieve self-reliance (Atmanirbhar) by manufacturing essential goods within India rather than relying on external markets.
• Protective Measures: To shield fledgling domestic industries from the superior efficiency and scale of established foreign competitors, the government implemented several barriers:
  • High Tariffs: Increased import duties made foreign goods significantly more expensive.
  • Quotas: Direct physical limits were placed on the quantity of imports allowed for specific goods.
  • Licensing: A strict industrial licensing system (the License Raj) required businesses to obtain government approval to expand capacity or diversify production, further controlling the competitive landscape.
• Objectives: The primary goal was to save foreign exchange reserves, reduce dependency on developed nations, and stimulate rapid industrialization by creating a captive market for domestic producers.
• Critique: While this policy fostered an indigenous industrial base, it is often criticized for leading to inefficiencies, poor product quality due to lack of competition, and a focus on production quantity over technological innovation. This policy regime largely continued until the economic reforms of 1991, which shifted India toward liberalization and globalization.