Protectionism

PROTECTIONISM & PROSPECTS OF ECONOMIC
LIBERALISATION
Protectionism –placing some restrictions on the free flow
of international trade---it is the policy of encouraging
domestic industries giving subsidies and concessions in
order to compete with foreign goods.
Argument in Favour.
Econom ic
1.The Revenue Argument.—by imposing more import
duties we can earn more revenue within the country
because generally only foreigners pay tax in low income
countries.

2. Infant industry argument.—“NURSE A
BABY,PROTECT THE CHILD, AND FREE THE ADULT”.
3.EmploymentArgument—
It protects employment opportunities in less
developed countries.---Imposition of tariffs helps to
restrict certain imports with the result that domestic
money is saved and this amount will be spent on the
purchase of goods produced at home.

4.Expanding a home market argument.—A home market can be
created and expanded behind the tariff wall. Export market is reduced
due to reduction in imports.
5 BOT argument.—Every country should strive for favourable bot—So
suitable tariff policy must be framed to achieve this. After the world war
many countries have done this. But if all the countries are doing the
same thing international trade would be diminished.

6. Purchasing power argument.—Reduction in imports will consume
purchasing power. But idea may not be right. Imports are usually paid
for exports.When there are no imports there cannot be any exports. No
foreigner will purchase our goods unless we buy his goods.
7. Scientific tariff argument.—Tariff should be levied to equalize cost of
production at home and abroad. Protection is argued in some countries
due to low cost of production.

8. Anti-dumping argument.---Protection is favoured on account of
preventing foreign producers from cutting domestic prices or
resorting to dumping. Hence a higher rate of tariff may be imposed
to protect the domestic producers.
9. Diversification of Industry Argument.—This policy is useful in case
of unbalanced economy due to excessive specialization With the
available resources, the economy of a country should be diversified
in order to bring about a balanced growth of all industries.
10. Key Industry Argument.—Basic and key industries should be
started within the economy to impart a greater degree of strength to
the economy.

B. NON--ECONOMIC ARGUMENT.
1. Defence Industry Argument.—A country should develop defence
industries within itself. It is always dangerous to depend on foreign
countries for our defence requirement.
2. National self- sufficiency argument.—A nation should be self-
sufficient in respect of certain essential supplies and not depend on
other countries particularly during war.
3.Preservation Argument.—It is highly useful in preserving certain
classes of pop. Or certain occupation. Eg. Agri. Community.

4. To check the import of harmful and luxurious goods.
5. Foreign capital can be attracted to the country by the method of
protection.
6. It increases saving which can be used for importing the required
capital goods.
7. Certain basic and key industries can be started only through
protection.

ARGUMENTS AGAINST PROTECTION.
1. Domestic producers become lethargic because they do not bother
about improving the quality.
2. Once protection is granted it becomes difficult to withdraw the same
3. It gives birth to corruption. EG. Due to 3G sprctrumthe loss to the
exchequer is estimated to the tune of 90,000 to 140,000 cr.
4. There is the possibility of concentration of economic power in the
hands of a few.
5. There is the possibility of unfair distribution of income and wealth.
6. It results in high loss of pub. revenue because high duties often
reduce imports.
7. Inefficient industries get opportunities to stay on in business due to
the lack of competition.

METHODS OF PROTECTION.
1 Imposing high import duties (tariffs) on those goods
which are produced at home countries.
2. Quotas.—It means quantitative restrictions on
imports. The domestic producers are able to know the
amount of foreign goods that will come from abroad.
The rest of the dd can be met by domestic producers.

3.Bounties.- it is the indirect discouragement of foreign
goods—when the cost of production of home made goods is
high, this procedure is used.—It is a sort of assistance to the
producer of the domestic country to meet with the
disadvantages of their prices.
4.. It is recommended in case of shortage of foreign
exchange.- A low rate of exchange encourages exports and
reduces imports. Devaluation of currencies is also resorted in
order to stimulate exports.

5. COMMERCIAL TREATIES.
Two or more nations extend their trade facilities to other nations by
mutual agreement in the form of MOST FAVOURED NATIONAL CLAUSE
under which the various concessions which one country enjoys is
automatically extended to other member countries of the agreement.
6. Boycott of foreign goods.—Very drastic steps—Eg, Swadeshi
Movement.
7. Legal provisions.—To encourage home industries the govt. may
impose legal restrictions on imports and exports.
8. In order to keep a rigid control, the govt. may take over the entire
foreign trade in its own hands.
9. Devaluation.—It promotes exports and discourages imports.

PROSOECTS OF ECONOMIC LIBERALISATION.
Dr. Manmohan Singh,in the yea july1991,introduced a slew of
economic measures in the name of NEW ECONOMIC
REFORMS, in order to redeem the economy from the clutches
of economic crisis and to put on the road to eco. devt.
Liberalisation.—those policies and principles which provide
freedom to the entrepreneurs from unnecessary bureaucratic
control to establish any industry/trade/business.

The areas of liber….. are:
1. Lincensing business.
2. Foreign investment.
3. Foreign Technology.
4.Establishment,Merger, Amalgamation and Take over.
5.Simple Exim Policies.

Main Features.
1.It abolished licensing of all industries except those under security and
environment concerns. More than 80% of industries benefited from it.
2. MRTP ACT was modified to encourage investment in large scale units.
3.There was automatic approval for foreign equity. Eg ADR, GDR.
4.No prior approval is needed to set up new industries in cities with a
pop. Of one million.
5.Capital markets have been freed and opened to pvt. entrepreneurs.
6.There will be automatic approval to foreign technology and foreign
direct investment up to 51% in high priority industries.

MEASURES TAKEN FOR LIBERALISATION
1.Liber…. Of industrial Lincensing.—With the exception of five industries
industrial lincesing has been abolished for all other industries. Any
entrepreneur can float any new industries except the five industries
without any restrictions.
2.Concessions from MRTP Act. In 2002 MRTP act was abolished and
large concessions were granted to companies falling under the above
act for setting up new industries or expansion of industries, taking over
and amalgamation.

3.Freedom for expansion and production to industries
4.Increase in the limit of small scale industries upto 5 cr. To enable
them to introduce modernization.
5.Freedom to import capital goods and raw materials from abroad
to expand and modernize.
6.Freedom to import latest technology.—High priority industries
need not seek prior permission to import and enter into
agreements relating to high technology.
7.Liberalisation of export and import transactions through which
import of capital goods, raw-materials technology etc. were made
easy.
8. Replacing FERA with FEMA.—For foreign exchange transactions.

9. Liberalisation in taxation policy.—
1.Peak income tax rates reduced to 30%.
2. Custom duty rates reduced from250% to 10%.
3. Excise-duty rates have been reduced.
4. Value- added system of tax introduced.
5.Service tax rate reduced from 12% to 10%.
10.Liberalisation in Capital market.—Indian companies have
been given the freedom to raise funds from the foreign
capital markets.

Liberalisation in the banking sector.—
1. SLR reduced to 24%.
2. Bank rate reduced to 6%.
3. CRR also reduced..
4. Repo and Reverse Repo rate also changed according to the
need of time.
5. Interest rates are deregulated.
6. Banks are given freedom to recruit their employees.
7. Norms for setting up new generation banks have been
liberalized.

FUTURE SCENARIO OF LIBERALISATION.
The new eco. reforms have done excellently well and has produced
excellent results. It has freed the economy from unnecessary and
irksome controls. The fruits of liberalization reached its pinnacle in
2007 when the GDP growth rate inched towards the kissing point of
double digit growth. Foreign investment in the form of FDIs and FIIs
have been flowing generously to India. On the whole we have to
conclude that much has been done but much is yet to be done. If we
do not make some calibrated efforts, our economy will go back to the
pre-reform era. Some typical problems might have crept in the
functioning of the programme. Hence the following suggestions may
help in encountering these problems.

1.Industries must provide good quality products of international
standards to the consumers at affordable prices.
2 The business community should look beyond the domestic
boundaries and try to reach the global markets.
3. Our industries must adopt the policy of total quality
management.
4. Exports must be made on a large scale to earn foreign
exchange.
5. Indian companies instead of remaining fully family controlled,
should form alliances with other companies both inside and
outside the country.

Protectionism

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Protectionism