Question

how import substitution policy protect the domestic industries.

Answer 1

Discouraging the imports of these goods that can be produce domestically. import substitution protect domestic industry in the sense that provide a protective environment to the domestic industry which specially help those domestic industry.

Answer 2

Answer:

            The import substituting industrialisation was the objective of second FYP (1956-61) till the Seventh FYP (till 1990). The Mahalanobis strategy of development was based on import substitution. The rationale of the import substitution strategy is based on infant industry argument. It helped to save foreign exchange by drastically reducing import of goods. The foreign exchange saved was to be used for the developmental imports such as capital goods, sophisticated technology, etc. It created a protected market and large demand for domestically produced goods.

Import substitution is also known as inward looking trade strategy which implies discouraging the imports of those goods that could be produced domestically .

➤ Import substitution strategy not only reduces and economy's dependence on the foreign goods but also pprovides impetus to the domestic firms .

➤ Government provides various financial encouragements, incentives,licences to the domestic producers to produce domestically the import substituted goods .

➤ This would not only allow the domestic producers to sustain but also enables them to grow as they enjoy the protective environment .