The Benefits and Costs of Import Substitution in India

The Benefits and Costs of Import Substitution in India: A Microeconomic Study

Anne O. Krueger
Copyright Date: 1975
Edition: NED - New edition
Pages: 160
https://www.jstor.org/stable/10.5749/j.ctttsdwj
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  • Book Info
    The Benefits and Costs of Import Substitution in India
    Book Description:

    The Benefits and Costs of Import Substitution in India was first published in 1975. In its basic economic plan, the government of India has fostered a policy of import substitution in virtually all industrial sectors. One industry in which the policy is followed is the automobile and ancillary industry, which is the subject of an analysis by Professor Krueger. She points out that some sort of import-substitution strategy should undoubtedly be adopted in any sensible development plan for a country such as India, but that questions arise when details of the controls and incentives used are examined. In a final chapter she discusses lessons for other countries which derive from the study.

    eISBN: 978-0-8166-6335-4
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Preface
    (pp. v-viii)
    A. 0. K.
  3. Table of Contents
    (pp. ix-x)
  4. TABLES
    (pp. xi-xiii)
  5. ABBREVIATIONS AND INDIAN TERMS
    (pp. xiv-xiv)
  6. Introduction
    (pp. 1-6)

    India has a relatively low per capita income--Rs.645 or $86 in 1969--even by standards of the developing countries. Consequently, the Indian economy has most of the characteristics common to the low-income countries: a preponderant agricultural sector, a large gap between rural and urban living standards and life styles, urban immigration and virtually unmanageable growth of urban slums, rapid population growth, an inability to provide education for all the young, a high fraction of illiterate and poorly educated people in the labor force, relatively low life expectancies, and so on.

    Two things set India apart from other developing countries: her size...

  7. I Indian Economic Policy and Performance
    (pp. 7-21)

    From the inception of India's independence movement to the present time, raising living standards has been a central concern of India's leaders. Most of the policies and bureaucratic regulations affecting the automobile ancillary industry, discussed in later chapters of this book, were adopted by the government as part of its overall effort to achieve economic development. The purpose of this chapter is to provide an overview of the Indian economy and of India's economic goals and performance. Such background is necessary for understanding the environment within which the automobile ancillary industry operates.

    The watershed date in Indian political history is,...

  8. II Industrial Development Policies in India
    (pp. 22-34)

    As shown in Chapter I, formulation and discussion of the five year plans were the means by which development objectives were determined. The plans were implemented by a variety of ministries and agencies and not directly by the Planning Commission.

    For some sectors of the economy, the government of India declared that economic activity was to be carried out by public enterprises, and private firms were not permitted to enter those activities. In other sectors, government-owned enterprises were established alongside private firms. The industries in which there were public sector enterprises included steel, machine tools, chemicals, and fertilizers. For those...

  9. III Growth of the Automobile and Ancillary Industry
    (pp. 35-60)

    In India the automobile industry is understood to consist of the final assemblers of passenger cars, trucks, buses, and jeeps. Assemblers of these products (and of motorcycles and scooters), as well as ancillary producers, come under the purview of the Automobile Directorate of the DGTD for purposes of obtaining their licenses. This group of producers is, for statistical purposes, included in the transport sector (which also includes bicycles and railway equipment) of the engineering industries. Although assemblers of motorcycles and scooters are not considered a part of the automobile industry in India, they are included in the industry for purposes...

  10. IV The Economics of Import Substitution in the Ancillary Industry
    (pp. 61-80)

    As we have seen, sizable incentives were created for import substitution in the ancillary industries and the resulting increase in Indian capability to produce vehicles and their components has been impressive. Although there are no reliable data on the aggregate of new resources employed in developing these production facilities, it is evident that new investment, foreign exchange, entrepreneurial talent, and skilled labor--all scarce in India--were devoted to the development of the industry. The question naturally arises as to the costs and benefits of this particular allocation of resources. The question is of importance for three reasons: (1) the answer should...

  11. V Domestic Resource Costs of Import Substitution in the Assembly and Ancillary Industries
    (pp. 81-98)

    Earlier chapters have been concerned with the Indian government's policies toward the private sector, the resulting growth of import-substituting activity in the automobile and ancillary industry, and the general economic aspects of ancillary production, as perceived by persons in the industry. As seen above, the growth of the industry has been impressive. In this chapter, estimates are derived of the domestic resource costs of import substitution in the automobile and ancillary industries. We shall first explain the domestic resource cost measure, then describe the data used to make such estimates, and finally present estimates for individual activities and for the...

  12. VI Causes of Domestic Resource Cost Variations
    (pp. 99-106)

    At the outset of the research, it was hoped to test four hypotheses about the causes of domestic resource cost variations: (1) infant industry (and time) considerations; (2) scale economies and indivisibilities; (3) relative factor intensities; and (4) efficiency of input use or "X-Efficiency." The last factor proved highly significant in explaining variations in domestic resource costs. The results of all the tests on the first three factors indicated no relation with the level of domestic resource costs. For expository purposes, it will be useful to discuss the negative results first and then discuss the efficiency factor.

    One possible explanation...

  13. VII Policy Implications and Conclusions
    (pp. 107-120)

    All available evidence suggests that the wide variations found in domestic resource costs result from differences in efficiency among firms. For purposes of development planning and policy, two important questions remain: What factors in the Indian economic environment allow such large differences in efficiency among firms to persist? And what, if any, lessons can be learned from the Indian experience that may shed light on economic policy alternatives in other countries?

    In a well-functioning market system, differences in efficiency among firms might exist at a point in time. However, inefficient firms would suffer losses (or below-normal profits) and would be...

  14. Appendix. Demarcation of the Automobile Parts To Be Manufactured by the Ancillary Industry and Vehicle Manufacturers
    (pp. 123-125)
  15. Notes
    (pp. 126-134)
  16. Index
    (pp. 135-140)