Briefly explained below are important points regarding the import substitution.
Objective
- Self-Reliance
- Save forex
- Generate employment
- Explore alternative of imported goods
Ways to promote import substitution
- Increase in tariff
- Quotas
- Industrialization
- Subsidies
- Government to use protectionist system
- Maximum research and development
Reasons for import substitution
- Increase production in domestic market
- Establishment of new industries
- Unfavourable balance of trade
- Devaluation of rupees
- Shortage of products
- Declining foreign aid
- Heavy imports
Advantages
- Protect jobs in domestic market
- Protect local culture and social habits
- Protects the economy from the power and bad influence of multinational corporations
- Opportunity of investment
- Diversification
- Increase in forex
- Balanced balance of payment
Disadvantages
- May only protect jobs in short run
- Inefficiency in domestic firms
- Means that the country doesn’t enjoy the benefit to be gained by comparative advantage and specialisation
- May lead to high rates of inflation due to domestic aggregate supply constraints
- May cause retaliatory measures
- Lack of competition
- Main lead to growth of inefficient monopolies
Refer Economics Important Topics for more other such topics