Import Substitution Induatrialization: Indian Emphasis

September 28, 2017

Apurva Arhatia

Law and Economic Development

Import Substitution Industrialization: Indian Significance

Import substitution industrialization(ISI) is a trade and economic policy that advocates replacing the foreign goods with domestic production. ISI works by having the state lead economic development through nationalization.  The objective of this policy is to bring structural changes in the economy. The structural changes can be made through the investment in the non-traditional sectors. Exploring the Indian Significance to ISI which shows in the post-war world, India was one of the most protectionist countries. Protectionism originated in British colonial measures to design an industrialization policy in the 1920s. Whereas in the 1920s, protection was applied with discrimination, after independence in 1947, protection was offered without discrimination.

With industrialization, nations become more homogenous in terms of consumption (food, books, TV and education). “Industrialization induces adjustments that are often disruptive of ancient patterns and ways of doing things” ... and opposition comes when” a spiritual or traditional way of life is [seen] as being threatened.””^[1]. Process of growth and development in unfolding consequence of a quantitative and qualitative reorientation of the entire level of the population. When we examine the initial structural transformation, we will see Import Substitution Industrialization (ISI) has been means which governments used to support transformation propelling an agriculturally based economy into a modern based industrial economy. The implementation of ISI would dependent on forward thinking and social leader success in establishing the base of the same. If we examine the implementation of ISI it begins with non-durable consumer goods (cloths, toys etc.) because these are the goods with a pre-existing market and production at low cost and skills needed are rudimentary. Extra protection is provided through tariff controls and the products manufactured are labor intensive with easily accessible technology, speed of production, and there is an existing domestic market for these products (quality and price compared to more expensive and better quality expensive imports).

Export Oriented Industrialization (EOI) could be an alternative consideration. A shift from ISI to EOI would be a best thing for an Economy. First the economy could use ISI to produce enough then EOI to export the excess. This would ensure self-sufficiency as well as export sufficiency. A reorganization of the internal structure of production toward a higher-degree of industrialization is insufficient for long-term progress without a fundamental reorientation of what less developed nations export to the world market – without this there is no possibility for evolution of the export structure.

Emphasizing on India’s move on ISI, during much of the late twentieth century, several countries in the developing world pursued a policy of import-substituting industrialization (ISI). The contents of the policy were not similar. The common ingredient was protective tariff afforded to domestic industry, whereas on nontariff barriers, foreign investment, state ownership of assets, and state regulation of private investment, policy differed substantially. India represented one of the more emphatic versions of ISI. Just before the economic reforms of 1992, unweighted average tariff rate in India, at over 100%, was likely the highest among large countries in the developing world. And it had been reinforced by nontariff barriers, restraints on foreign investment, nationalization of financial services, and regulation of private investment.