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CA Foundation · Business Economics · International Trade

Under a trade policy of import substitution, a developing country like India would typically:

Import substitution means encouraging domestic production of goods that were earlier imported, usually backed by protection such as tariffs and quotas to shield local industries. It is the opposite of liberalisation and differs from export promotion, which focuses on producing goods for sale abroad.

  1. AEncourage domestic production of goods previously imported, often using protection such as tariffsCorrect
  2. BReduce tariffs sharply to increase imports of manufactured goods
  3. CFocus resources only on producing goods for export markets
  4. DRemove all restrictions on foreign investment and imports

Explanation

Import substitution aims to replace imports with domestic production, and protective tools such as tariffs and quotas are used to shield infant industries. Option 2 and option 4 describe liberalisation. Option 3 describes export promotion, which is the opposite strategy.

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