Discuss the merits and demerits of Free Vs Protection for a developing country like India.
Trade policy is a set of policies adopted by a country with reference to imports and exports. It can be a free trade policy or protective trade policy A policy which does not impose any restriction on the exchange of goods and services between different countries is a free trade policy. It includes exchange restrictions, taxes and subsidies on production, absence of tariff quotas; factor use and consumption. The disadvantages of this policy results in the emergence of protective trade policies in the early 20th century. Whereas, a policy which seeks to maintain a system of trade restrictions with the objective of protecting the domestic economy from the competition of foreign products is a protective trade policy.
Trade policies may be outward looking or inward looking. An outward looking trade policy encourages free trade as well as the free movement of capital, workers, enterprises and students, a welcome to the multinational enterprise and an open system of communications. Whereas an inward looking trade policy stresses the need for a country to evolve its own style of development and to be the master of its own fate, with restrictions on the movement of goods, services and people in and out of the country. It also encourages the development of indigenous technologies appropriate to a country’s resource endowment. Some of the commodity specific trade policies which can be adopted by developing countries like India are:
- Primary Outward Looking Policies: They are aimed at encouraging agricultural and raw material exports.
- Secondary Outward Looking Policies: They are aimed at promoting manufactured exports.
- Primary Inward Looking Policies: Its objective is to achieve agricultural self-sufficiency.
- Secondary Inward Looking Policies: Its objective is attaining manufactured commodity self-sufficiency through import substitution.
Trade Policy will strongly influence the direction, trade and growth of foreign trade of a country, which in turn, will have a bearing on the economic development process. Therefore, trade policy is an important economic instrument which can be used by a country, with suitable modifications from time to time, to achieve its long-terms objectives.