Protection of Industries: Arguments in Favour and Against

Let us make an in-depth study of the protection of industries:- 1. Arguments in favour of protection 2. Arguments against protection.

Arguments in Favour of Protection:

The theory of protection aims at helping some industries against foreign competition.

Protection to industries is used with the following objectives:

1. To help initial and infant industries:

As the infant has to be protected till it grows to manhood. “Nurse the baby, protect and feed the infant and freed the adult.” is a well-known and accepted maxim. Protective duties word as ‘Crutches, to teach new manufac­turers to walk. India imposed and extended protection to some industries on this basis.

2. To keep “money at home”:

When we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home we get both the goods and the money. It may just be possible that we might be paying more money for these goods than we may have to pay for foreign goods of the same quality, if allowed to come freely. But we do not mind paying more and feel proud, when making a little sacrifice.

3. To develop ‘key and important industries’:

In India key industries are chemical and metallergical industries. They are keys to further industrial expansion. They serve as a base for the national economy. This is very strong argument for the Government of India to protect India’s heavy chemical industry.

4. To attain self-sufficiency:

If the government wants to make the country independent of foreign supplies protection is necessary. Complete self-sufficiency is not possible then partial self-sufficiency may be sought for only in essential industries.

5. To provide and create employment:

Protection helps to develop industries and it creates more employment. There is no doubt that in India the development of sugar and other industries under protection provided a large volume of employment.

6. To receive more inflow of gold:

When we send goods to other countries and close our doors for others goods we receive more gold. But this is possible only when our goods have an inelastic demand and the other countries either cannot or do not retaliate.

7. To correct adverse balance of payments:

Sometimes protection is needed with a view to correct an adverse balance of payments. Protection reduces imports and the balance of payments situation can thus be improved. But this can be a temporary measure.

8. To prevent dumping of foreign goods:

Dumping is the method adopted by foreign country to kill our industry by selling goods at a price even below the cost of production. This system is adopted to fight competition and then to make up all losses by charging higher prices. Anti-dumping duties and taxes are therefore justified to save the home industry.

9. Production of country’s defence material:

The industries which produce defence materials and equipment such as arms, ammunition, tanks etc. must be protected. Govern­ment should adopt suitable measures to protect defence materials.

Arguments against Protection:

Some of the dis-advantages or dangers of protection are as follows:

1. Protection Acts Like an Opiate:

When foreign competition is checked the home producer or the home manufacturers become lethargic. All research work and improvements are neglected. Technical progress comes to a standstill.

2. Loss of Public Revenues:

If high protective duties are imposed, there will be no imports and revenue from customs will fall.

3. More Burden on Consumers:

More objection to protection comes from the consumers. The burden of protective duties does not fall on the foreign manufacturers. The burden is on the home consumer because he has to pay a higher price than before. Therefore it does not look fair that a poor consumer should be penalized. By this inequalities of wealth distribution are further aggravated.

4. Danger of Corruption:

In capitalist countries like America. Legislators are bribed by industrialists to press to pass legislation in their favour. Legislation may adversely affect consumers.

5. Available Resources not Applied Properly:

Protection diverts labour and capital and other factors of production into set channels. They are prevented from seeking their most remunerative employment. This may decrease the national dividend.

6. Danger of Retaliation:

There may be danger of retaliation from abroad, which may result some home industries to suffer.

7. Vested Interests are Created which Refuse to give up Protection:

They start to make hue and cry at the slightest indication of withdrawal of protection.

8. Limited Choice of Goods:

Protection limits the choice of consumer goods. Through tariffs, quota and exchange control, the availability of foreign goods is severely limited. Protection drastically cut down the availability of foreign goods like books, magazines, pictures, clothing’s, food etc.

9. Life Goes Backward:

Goods imported from other countries bring with them ideas and styles and other ways of living. They enrich our life.