Why in news?
Government is thinking about bringing an import substitution policy in the wake of the new economic situation created by COVID-19 pandemic.
- The Minister emphasized that special focus towards export enhancement is the need of the hour and necessary practices shall be adopted to reduce Power cost, Logistics cost and Production cost to become competitive in the global market.
- There is also need to focus on import substitution to replace foreign imports with domestic production.
- Industry should focus more on innovation, entrepreneurship, science and technology, research skill and experiences to convert the knowledge into wealth.
What is ‘Import substitution’ in Economics?
- Import substitution industrialization is a theory of economics typically adhered to by developing countries or emerging-market nations that seek to decrease their dependence on developed countries.
The theory targets the protection and incubation of newly formed domestic industries to fully develop sectors so that the goods produced are competitive with imported goods.
- Under this theory, this process makes local economies, and their nations, self-sufficient.
- The primary goal of the implemented substitution industrialization theory is to protect, strengthen and grow local industries using a variety of tactics, including tariffs, import quotas, and subsidized government loans. Countries implementing this theory attempt to shore up production channels for each stage of a product’s development.