Day 33 – Q 5.Should India contemplate over the strategy of ‘import substitution’ in an era of looming global trade war? Critically examine.
5. Should India contemplate over the strategy of ‘import substitution’ in an era of looming global trade war? Critically examine.
क्या भारत को संभावित वैश्विक व्यापार युद्ध के युग में ‘आयात प्रतिस्थापन’ की रणनीति पर विचार करना चाहिए? समालोचनात्मक जांच करें।
Approach:
- Introduction
- Recent developments- Why in news?
- Benefits and Cons of import substitution
- Conclusion
Introduction:
Import substitution is a trade and economic policy which advocates replacing foreign imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products.
Recent developments:
US President Donald Trump has recently slapped steep tariffs on billions of dollars’ worth of goods from the EU, Canada, Mexico and China. US is propagating protectionism (opposite of free trade) leading to other countires give a though on import substitution.
Benefits of import substitution:
- Self-reliance helps the country protect itself from global turmoil like volatility, recession etc. In the wake of ongoing trade war and increase in import tariffs by other countries, to protect oneself import substitution policy will be helpful.
- Improves current account deficit and balance of payments.
- Boost to domestic industries creating new job opportunities.
Challenges involved:
- As per NITI Aayog, it would make it hard for domestic companies to scale and compete globally. It would give rise to a group of relatively small firms behind a high wall of protection.
- Free trade as an economic policy contributes majorly to international relations.
- In long term it would result into rise in prices of goods and services due to lack of competition.
Conclusion:
Thus, import substitution is not a sustainable option. However, the policy can be implemented in few sectors.
Further, globally WTO needs to be revamped so that it plays a major role in handling the issue of looming trade war and help promote gloabalization.
Best answer: gargantuan
