From import substitution to strategic protectionism: India’s trade policy, industrial development and economic transformation

This article examines the evolution of India’s trade policy across four historical phases, from import-substitution industrialisation to liberalisation and, more recently, strategic industrial policy. Drawing on historical evidence and macroeconomic data, the study applies the Quandt–Andrews and Bai–Perron structural-break tests to export performance and manufacturing value added over the period 1960–2024. The results identify statistically significant structural breaks in both series, with export share exhibiting breaks around 1981 and 2009 and manufacturing value added exhibiting breaks around 1982, 1995 and 2007, indicating that India’s economic transformation proceeded through a sequence of distinct policy regimes rather than through a single continuous process centred on the 1991 reforms. The study also examines five sectors – textiles, steel, pharmaceuticals, agriculture and electronics – and finds that protection worked well when it was temporary and tied to actual performance, as seen in pharmaceuticals and, to some extent, electronics. But where protection continued indefinitely without pushing industries to become competitive, as in textiles and agriculture, it held back progress. The article concludes that India’s experience doesn’t fully support either complete free trade or permanent protection and instead suggests that protection works best when it is conditional, tied to results and combined with staying open to global markets.