Correct Answer - Option 4 : quantitative restrictions on imports
The correct answer is quantitative restrictions on imports.
The Government of India can take many measures to control the money supply in India by controlling the purchasing power in the hands of the public. There are measures that are undertaken to promote the domestic industries and thereby lead to a reduction in imports. The Government of India has the power to regulate the foreign trade practices that may hamper the domestic industries.
In order to protect domestic industries, there are two major decisions that the Government may take in order to protect the domestic industries:
- Tariffs- a tax on imported goods to make imported goods more expensive and discourage their use. This would lead to buyers choosing to purchase more of domestic goods than imported goods.
- Quotas- These specify the number of goods which can be imported. This is also known as the quantitative restriction on imports. This is done to purposely reduce the number of goods that can be imported from other countries. The combination of both these measures is known as the policy of import substitution.
The policy of import substitution provides protection to domestic industries from foreign competition. The rationale for this policy is that industries of developing countries like India are not in a position to compete against the goods produced by developed economies. It is assumed that if the domestic industries are protected in the infant stage they with gain strength by being able to produce on large scale and through experience to compete in the course of time.
- Imports- Imports refers to the process of buying goods from foreign countries. It is unfavorable for India, as, increase in imports implies the flow of capital from India to abroad.
- Exports- Exports refer to the process of selling goods to foreign countries. It is considered to be favorable as an increase in exports implies the flow of capital into India from abroad.
