What are the drawbacks of inward looking trade strategy?

Q: What are the drawbacks of inward looking trade strategy?

Inward looking trade strategy has the following drawbacks: 1. Lack of modernisation in the industrial sector: This strategy protected the domestic industries from competition from foreign industries. In the absence of any competition, domestic industries paid no attention to modernise their manufacturing facilities and supply superior quality products to consumers. 2. Inefficient utilisation of resources: This strategy encouraged the production of all the goods domestically. This implied that the country should produce even those goods which it can import at a cheaper rate from foreign countries. This resulted in inefficient utilisation of scarce resources. 3. Emergence of black market: This strategy aimed to discourage imports by imposing high tariffs and quantitative restrictions. This led to the emergence of a very strong black market where goods from foreign country were smuggled into the countries illegally. This led the economy to lose crores of rupees. 4. Inadequate flow of foreign capital: This trade policy imposed several restrictions on flow of foreign capital. Foreign investors wanting to invest in India were required to comply with several rules and regulations. These formalities discouraged them from investing in India.

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Solution

Inward looking trade strategy has the following drawbacks:

Lack of modernisation in the industrial sector: This strategy protected the domestic industries from competition from foreign industries. In the absence of any competition, domestic industries paid no attention to modernise their manufacturing facilities and supply superior quality products to consumers.
Inefficient utilisation of resources: This strategy encouraged the production of all the goods domestically. This implied that the country should produce even those goods which it can import at a cheaper rate from foreign countries. This resulted in inefficient utilisation of scarce resources.
Emergence of black market: This strategy aimed to discourage imports by imposing high tariffs and quantitative restrictions. This led to the emergence of a very strong black market where goods from foreign country were smuggled into the countries illegally. This led the economy to lose crores of rupees.
Inadequate flow of foreign capital: This trade policy imposed several restrictions on flow of foreign capital. Foreign investors wanting to invest in India were required to comply with several rules and regulations. These formalities discouraged them from investing in India.

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