What was the main rationale for the policy of import substitution during the first seven Five Year Plans?

Correct — C. Import substitution means replacing imports with goods made at home. In the first seven Five Year Plans (1951 to 1990), India shielded its young industries from foreign competition with tariffs and quotas.

The rationale was the infant industry argument: new domestic industries could not yet compete with those of developed economies, but could learn to if protected for a time → option (c).

Why the others are wrong

• (a)
  To expand international trade — Import substitution was an inward-looking trade strategy. It aimed to cut imports and build home production, not to expand international trade.
• (b)
  To attract foreign investors — Attracting foreign investors was not the aim. Before the 1991 reforms, foreign investment in India was tightly restricted, and protection was aimed at domestic firms.
• (d)
  To create export dependency — The planners sought self-reliance, one of the stated goals of the Five Year Plans. Creating export dependency runs against a policy meant to reduce reliance on others.

The Five Year Plans named four goals: growth, modernisation, self-reliance and equity. In trade, self-reliance took the form of import substitution: goods that could be made at home were kept out or made dearer.

Protection came as tariffs, a tax on imported goods, and quotas, a cap on the quantity that may be imported. The 1991 reforms moved India away from this strategy.

Key facts

• India's first seven Five Year Plans ran from 1951 to 1990.
• Import substitution means replacing imports with domestic production.
• Protection took two forms: tariffs, a tax on imports, and quotas, a limit on import quantity.
• The 1991 economic reforms moved India away from import substitution.

Common traps

• Reading import substitution as a trade-expansion policy: it was inward-looking and aimed at reducing imports.

No directly related past PYQ was found.