Import substitution
Topic: Politics of Planned Development · NCERT: Class 12, Ch 3 "Politics of Planned Development"; Class 12, Ch 4 "India's External Relations"
Meaning
Import substitution means making at home the goods that a country used to import. The state protects this home industry with high tariffs, which are taxes on imports that make foreign goods costlier. It was a core part of India's early planning, especially from the Second Five Year Plan onwards. It helped both public and private industry grow. But it limited export-led growth, meaning growth driven by selling goods abroad.
Example
Under the Second Plan (1956-61), India built its own capacity in steel and machinery instead of importing them. High tariffs kept foreign products out. But India had to spend scarce foreign exchange (foreign currency) on importing technology.
Don't confuse with
- Liberalisation: it opens the economy to imports and foreign trade. It was not part of early policy, and the big shift towards it came in 1991.