Glossary term
Import Substitution: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Import substitution is a trade strategy that replaces imports with domestic production, protecting domestic industry from foreign competition through tariffs and quotas. India followed it in the first seven plans. It built industries but gave producers a captive market and little incentive to improve quality or export.
In more detail
Import substitution assumed that a young industry needs protection until it can match foreign producers. It succeeded in building a wide industrial base, but long protection reduced the pressure to cut costs or improve quality. By the 1980s many economists argued that exports, too, needed support.
Example
Instead of importing vehicles, India encouraged firms to make them at home, taxing imported vehicles heavily.
Key points
- Tools: tariffs and quotas.
- Assumes young industries need protection.
- Weakened competition and exports.
Common mistake
Mixing it up with export promotion, the opposite strategy.
Related terms
Where it is explained
This term is explained in Class 11 Indian Economic Development Chapter 2: Indian Economy 1950-1990.