Q. 27 What are main reasons for protec... [FREE SOLUTION]

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Chapter 21: Q. 27 (page 522)

What are main reasons for protecting 鈥渋nfant industries鈥�? Why is it difficult to stop protecting them?

Short Answer

Expert verified

To let them develop and make competition ready.

Step by step solution

Step1. Introduction

Infant industries refers to those industries which have recently been setup and under development.

Step2. Explanation

Infant industries need protection, as they are still under the stage of development. As they are recently setup, they are small in size and lack in experience. They can only slowly expand and gain experience to compete with other big firms maybe domestically and abroad. Protection is necessary to let them develop at their pace and make them competition ready at global level. This also ensures self reliance if an industry is let to develop domestically. It hence becomes necessary to let infant industries grow, and to give them incentives to become efficient and profitable.

Step3. Implication

It is difficult to stop giving protection to infant industries as due to the following reasons:

1. The time period of development can not be fixed and varies from one industry to another. One industry may take longer for development than the other.

2. A large proportion of industries despite having capabilities and chances to scale die out at infant stage due to lack of incentives and support to become profitable and efficient.

3. Existence of extreme competition can make them run out of businesses even after assuming they have crossed the infant stage. Experience and scalability may not necessarily come even if they start earning profits.