Answer:
In the first seven plans,
India followed an inward looking trade strategy. This strategy aimed at
replacing or substituting imports with domestic production is called import
substitution, e.g., instead of importing electronics goods made in a foreign
country, industries would be encouraged to produce them in India Itself. Thus
the government protected the domestic industries from foreign competition
through this policy.
Protection from imports took two forms
(i) Tariffs i.e., a
tax on imported goods to make imported goods more expensive and discourage
their use and
(ii) Quotas specify the quantity of goods which can be imported.
The policy of import substitution provides protection to domestic industries
from foreign competition.
The rationale for this policy is that industries of
developing countries like India are not in a position to compete against the
goods produced by developed economies. It is assumed that if the domestic
industries are protected in the infant stage they with gain strength by being able
to produce on large scale and through experience to compete in the course of
lime.
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