What is Import Substitution?
Substitution refers to replacement of one material by another for performing the same function. Import substitution, on the other hand, refers to indigenous, source of development so as to
- get the materials indigenously,
- to conserve valuable foreign exchange,
- to reduce the cost of production, and
- encourage and develop local industry and trade.
Import substitution as a national policy aims at self-reliance. As a major objective, it goes a long way in achieving favorable balance of payments. In India, various government departments help in achieving the objective.
Large Public Sector organizations have set up import substitution cells. The petroleum refineries have set up a technical development committee to give fillip to import substitution. But the responding organizations attribute the slow progress in import substitution for various reasons.
Problems in Import Substitution
Though our efforts have been laudable in this regard, it does not mean that we have no problem in the field of import substitution. We do suffer from certain limitations which create bottlenecks and our efforts in this direction are chocked.
Various industries, central agencies, government departments such as Directorate General of Technical Development — pose certain problems which act as a check post in this direction. Some of the problems faced are as given below:
1. Specifications and Standards
Usually very tight specifications and standards are set by those who are in authority without considering the limitations of country. The specifications and standards set by the authorities are usually borrowed from foreign countries which in most of the cases are not in conformity with the Indian conditions. In order to make them relevant to our conditions, it is necessary to review the borrowed specifications and standards. But unfortunately this is not being done.
2. Performance Guarantees
Usually Indian machinery, tools and equipment manufacturers are unable to offer performance guarantees and assure very high quality. This helps those who are interested in imported capital equipment. First, they borrow specifications and standards for imported items and they compare the indigenous items with such imported items. Obviously, indigenous items fall short of their expectations and under this pretext, they usually go in for imported items.
High image of foreign brand names also creates difficulties in import substitution.
4. Indigenous Items
Foreign collaborators, because of their nature and commercial compulsions, will seldom like to see the development of indigenous items. With this viewpoint they keep licensees and their subsidiaries dependent upon their raw materials, components, spares, technical know-how, etc. This naturally helps them and jeopardize our efforts for import substitution.
5. Licensing Rules and Controls
Unhelpful licensing rules and controls really create problems for import substitution. Such rigid licensing rules and controls need close examination and have to be removed wherever necessary to pave way for the development of import substitution.