Question

“Import substitution policy, if not applied carefully, can prove to be a double-edged sword for any economy.” Do you agree with the given statement? Justify your answer with valid arguments.

Hint:

Import substitution helps young industries, but unchecked protectionism can reduce competitiveness and efficiency.

Answer 1

Yes, I agree with the statement. The import substitution policy focuses on reducing dependency on imported goods by promoting the domestic production of industrial and consumer goods. While this policy can initially protect local industries, it can also lead to adverse outcomes if not handled prudently. Arguments in support:
Positive Impact:
Protects nascent domestic industries from foreign competition.
Conserves foreign exchange by reducing imports.
Generates employment and encourages industrialisation.
Negative Impact:
Lack of Competition: Domestic industries might become inefficient and complacent in the absence of foreign competition.
Higher Prices and Limited Quality: Consumers may face higher prices and limited product choices as domestic producers face no competition.
Technological Obsolescence: Insulation from global markets discourages technological upgradation and innovation.
Balance of Payment Issues: Limited exports and stagnant industrial growth can result in balance of payments difficulties over time. Conclusion: Thus, while import substitution can support initial industrial development, its prolonged or excessive use without competitive reforms can hurt the economy’s long-term efficiency and global competitiveness.