ASSIGNMENT ON EXPORT PROMOTION AND IMPORT SUBSTITUTION STRATEGY

INTRODUCTION:Countries that aspire for economics development

through foreign trade applies two important measures:

EXPORT PROMOTION

IMPORT SUBSTITUTION

MEANING OF EXPORT PROMOTION: It refers to the policy of the government designed to encourage the exporters to export more goods from the country than before. To achieve this end, several incentives are given to them, viz. 1.Cash subsidies 2. Bank loan at cheap rate of interest 3.Facilities are provided to import machinery and raw material 4.Concessional freight rates are charged by railways and shipping companies on the goods exported 5.Tax concessions are given to the export 6.Certain percentage of export earnings are permitted to be utilized for the import of machines and raw materials needed by exporters.

FORMS OF EXPORT PROMOTIONExport promotion of

primary productsExport of

manufactured products.

BENEFITS OF EXPORT PROMOTION1. Trade helps in breaking vicious circle of poverty2. Inducement to invest 3. Expansion in the extent of the market4. Technical progress5. Efficient use of means of production6. Import of capital goods and export of primary

goods7. Basis of import of foreign capital8. Healthy competition

HARMFUL EFFECTS OF FOREIGN TRADE ON DEVELOPMENT Lopsided development Limited possibility of gain Adverse effects of foreign capital Adverse effect of demonstration effect on

investment Secular deterioration in the term of trade

OBSTACLES IN THE WAY OF EXPORT PROMOTIONo Foreign competitiono High prices o Substitutes o Low qualityo Tariff policieso Limited marketo Lack of publicity

SUGGESTION FOR EXPORT PROMOTION STRATEGYProper management of informationExport sector should be declare priority sectorControl room for exportsProduct planning for exportsTraining for export marketingState tradingCost benefit analysisJoint ventures abroadForeign collaborationMultilateral and bilateral agreementEncouragement to tourist tradeTax concessionSpecial export schemes

IMPORT SUBSTITUTION

Import Substitution Means, “Total Or Partial Replacement Of An Imported Product Of The Same Functional Requirement Mainly From Indigenous Material And Know-how.”Acc. To M.P.TODARO, “Import substitution entails an attempts to replace commodities usually manufactured goods formerly imported with domestic source of production.”

KINDS OF IMPORT SUSTITUTIONSIMPLE

SUBSTITUTION: In this case, almost an

imitation of import good is sought to be produced in the country. There is very little variation in shape and functioning from the import good. Example: production of cycle, food grain, etc.

ALTERNATIVE SUBSTITUTION:

In this case, the substitutes produced indigenously vary in shape and function from the imported product. But its working is more or less the same. Example: use of copper tubes in sugar making machine, etc.

STAGES OF IMPORT SUBSTITUTIONFirst Stage: It entails the replacement of the imports

of non-durable consumer goods, such as clothing , shoes, and household goods, and of their inputs such as textile fabrics, leather and wood, by domestic production, since these commodities suit the combination existing in developing countries that are at the beginning of industrialization process.

Second Stage: in this the underdeveloped countries expand their manufacturing industries oriented towards domestic markets. This purpose is said to be served by industrial protection that is said to bring additional benefits through improvements in terms of trade.

NEED OF IMPORT SUSTITUTION1) Unfavorable balance of trade.2) Devaluation of rupee.3) Shortage of foreign exchange.4) Declining foreign aid.5) India mostly imports food grain, petroleum,

fertilizers, machinery, metals and chemical products.

6) Developing nations has been experiencing the shortage of many important goods like petrol, fertilizers, etc.

OBJECTIVES OF IMPORT SUBSTITUTION POLICYa. Import of raw material, spare part, etc. should

be substitute by domestic products.b. Reduction of import components in each unit

of domestic output.c. Production of chemical goods by domestically

produced raw material.d. To explore alternatives of imported goods and

seek their production.e. To increase the domestic production of such

imported items as food grains, etc. so that dependence on imports is minimized.

METOD OF IMPORT SUBTITUTIONTariff policy.Increase in production.Research.Swadeshi spirit.

EVALUATION OF IMPORT SUSTITUTION POLICYAccording to Dr. Manmohan Singh, “Along with the control on

the import of non-essential goods, their domestic production should also be encouraged.”

According to Prof.Padma Desai, “as an instrument of development of an underdeveloped economy, policy of import substitution seems to be unable to generate any fundamental change in economy.”

In short, Prof. Helleiner has rightly summed up that; “It is difficult to find any rationale for the pattern of import substitution industrialization which has, whether consciously or not, actually been promoted. It has given undue emphasis to consumer goods in most countries. It has given insufficient attention to potential long run comparative advantages; and it has employed alien and unsuitable capital intensive technology to an extraordinary unnecessary degree.”

SUGGESTIONS:Import substitution should be in respect of

the production of those goods which are incidental to industrialization, such as, steel, news print, etc.

Allocation of investment for import substitution should be in favour of primary industries.

Public and private sectors should co-operate with each other for success of import substitution.

Assistance of foreign capital should be sought to establish import substitution industries.

CONCLUSION:According to Krueger, “Experience has been that growth performance which has been more satisfactory under export promotion strategies than under import substitution strategies. While it is impossible to specify a particular model of growth process that will be simultaneously satisfy all observers, the relation ship between export performance and growth is sufficiently strong that it seems to beer up under many different specifications of the relationship.”