The correct option is 2 only
Explanation
During the first seven five-year plans (1950-1990), India adopted an Inward-Looking Trade Strategy. This approach prioritized domestic industrialization by restricting imports and relying on internal production capabilities.
Statement 1 is Incorrect:
The strategy was technically known as Import Substitution. Its primary objective was to replace imported goods with goods produced domestically, thereby reducing dependence on foreign markets and conserving foreign exchange.
Statement 2 is Correct:
The statement confuses the functions of trade barriers.
- Tariffs are taxes or duties levied on imported goods to make them more expensive relative to domestic goods. They do not limit the physical volume of imports.
- Quotas (Quantitative Restrictions) are the instruments used to specify the quantity of goods that can be imported.
Statement 3 is Incorrect:
The policy aimed to protect domestic industries from foreign competition, not expose them to it. This was based on the Infant Industry Argument, which suggests that developing industries require protection from established foreign competitors until they are mature enough to compete efficiently.
Key Takeaway:
Import Substitution is a protectionist policy that uses tariffs (taxes) and quotas (quantity limits) to shield domestic industries from foreign competition and promote self-reliance.