Import-Substitution Industrialization Process

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Question : Explain the characteristics and effects of import-substitution industrialization process undertaken.

Answer :

Import substitution industrialization (ISI) is defined as the policy related to trade and economy which suggests to replace the foreign imports with the domestic products. According to ISI, a nation should make attempt in minimizing its dependency upon foreign nations by locally producing its industrialized products. ISI works with the assistance of leading state economic development which is achieved through increased taxation, subsidization major industries, nationalization, and other trade policies.

With a keen interest in Import Substitution, the current government of Indiahas launched and investing in the flagship of Make in India program.The Indian policies of privatization and liberalizationacts as a major tool for attracting the foreign countries for immense investment(Roy, 2017). The net FDI for India in 1990-91 was approximately 0.1 US $ billion and in 2009-10, it increased to 18.8 US $ billion. In the present time, for some of the sectors, the maximum allowed FDI of India is up to 100%.

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The present Indian government Prime minister, Narendra Modi emphasizes on reducing the imports of the unnecessary commodities (which includes fruits, sugar, cocoa products, alcoholic beverages, sesame seeds, edible oil, cashew, pulses, and packed products). This action not only help in reducing foreign dependency but also minimizing India’s deepening PAD (Present Account Deficit). Moreover, it will also help the Indian currency (Rupee) to gain more value against the Dollar. Indian government does not follow the free trade policies and took a bold decision of not signing the deal of WTO, as there is risk of compromising the nation’s food procurement policy and the distribution policy. This act of Indian government also comes under the RSS notion of being “Swadeshi”. As per the analysis done, India’s dependency on oil and energy are expected to increase. However, the import of electronics hardware from India is calculated to increase by USD 400 by the year 2020.

Question : Expose the main challenges and opportunities for the Indian Economy in the near future.

Answer :

India being the fourth largest economy in the world, produces approximately $9.4 trillion in 2017 through goods and services. however, India needs to plan strategically to beat the top three economy nations; China, European Union, and the United States. India managed to grow rapidly instead of the great recession, which eventually helped in reducing the poverty rate by 10% over the last decade.

Opportunities:

• India offers several well equipped technologies for the workers in skilled asset for the nation’s economic development.

• English has become the official language in India as well as is incorporated in the high level education. Thus, US outsource most of the English speaking Indians for several jobs.

• Annually, it is found that 11 millions of rural people move to the cities in order to seek for a better quality of life. This urbanization can help in drivinga rapideconomic development. According to reports, it is expected to generated around 70 percent of the new job opportunities by 2030 (Angel Gurria, 2017).

• The Bollywood (Indian film industry) is another opportunity for India, as it creates twice the number of Hollywood movies. However, it generates much lower revenue ($ 4.5 billion) as compared to Hollywood ($51 billion) because of the low ticket price. However, the positive aspect of Bollywood films includes its minimum making price., that is $ 1.5 million on an average.

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Challenges:

• The US monetary policy proved to be fatal for the Indian economy. While introducing the quantitative easing program by the Federal Reserve, the value of dollar strengthened because of low interest rate. On contrary the value of Indian rupee decreased leading to the hike in interest rate in Central bank of India.

• India merged both budget deficit and current account making it only 12 percent of the GDP. This act creates more pressure on Indian government and its economy (Ruth Kattumuri, 2013).

• The land acquisition law is expected to increase the cost across Indian economy by making the various industrial as well as real estate projects not feasible. This law will also force India to draft the land related legislation continuously for a sustainable growth.

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