What is trade policy?
Trade policy: Why are we discussing trade policy? Because trade connects the countries, so to excel in economics you need to have a clear understanding of trade policy. Every country wants to improve its import and export relations with other countries. So, when we say the word ‘Trade’ we mean buy and sell at an individual level. But trade policy is a bigger concept that involves countries that purchase or sell goods and services among each other.
During the planning commission from 1951 till 1990, there have been seven individual 5-year plans which include;
1st Five Year Plan from 1951-1956
2nd Five Year Plan from 1956-1961
3rd Five Year Plan from 1961-1966
Plan Holiday from 1966-1969
4th Five Year Plan from 1969-1974
5th Five Year Plan from 1974-1979
Rolling Plan from 1979-1980
6th Five Year Plan from 1980-1985
7th Five year plan from 1985-1990.
During all these plans, Indian trade was mainly inward-looking that is, India was substituting imports which means replacing imports with domestic production. For example, instead of importing vehicles made in a foreign country, Indian industries would be encouraged to produce themselves in India.
Now, the question arises ‘How India was implementing import substitution?’ Well, India adopted two tools to be successful in substituting imports, which are discussed below:
- Tariff: These are the taxes on imported goods. They make imported goods more expensive and discourage their use.
- Quotas: It specifies the number of goods which can be imported in a country.
Both these tools helped in restricting imports and therefore, protect the domestic firms from foreign competition.
To summarize, during the planning period from 1951 till 1990, India focused on restricting imports from other countries and making those goods within the home country instead of buying them from abroad.