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Q31 (IAS/1996) Economy › External Sector & Trade › Trade policy reforms Answer Verified

Assertion (A) : An important policy instrument of economic liberalization is reduction in import duties on capital goods. Reason (R) : Reduction in import duties would help the local entrepreneurs to improve technology to face the global markets. In the context of the above two statements, which one of the following is correct ?

Result
Your answer: —  Â·  Correct: A
Explanation

Both Assertion and Reason are true and the Reason correctly explains the Assertion. Reduction of import duties on capital goods is a common element of economic liberalization policies, as governments have explicitly proposed and implemented lower customs duties and exemptions for capital equipment to promote manufacturing and competitiveness [1]. Schemes that allow duty-free or concessional import of capital goods (e.g., EPCG) are designed to enhance export competitiveness by enabling firms to acquire modern machinery and technology at lower cost [2]. Empirical studies also show that tariff reductions correlate with increased firm spending on technology and technology upgrading, linking lower import duties directly to improved technological capacity needed to face global markets.

Sources

  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 15: Budget and Economic Survey > Indirect Taxes > p. 448
  2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > Recent Major Schemes to promote Foreign Trade > p. 505
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