Protection aims at helping some industries against foreign competition. This is done either through duties on imported goods, or bounties to domestic producers.
An import duty makes the foreign articles sell at higher prices and so helps the home manufactures.
This method is used with the following objectives:
(i) To help infant industries:
An infant has to be protected till it grows to manhood. ‘Nurse the baby, feed the infant and free the adult’ is a well-known maxim. Protective duties are ‘crutches’ to teach new manufacturers to walk. The advantage thus gained is often greater than the cost paid by consumers in the shape of higher prices. India extended protection to some important industries on the basis of this argument.
(ii) To keep ‘money at home’:
When we purchase ‘swadeshi’ goods, we are keeping purchasing power in our own country. It is possible that we are paying more for these goods than we may have to pay for foreign goods of the same quality, if allowed to come in freely. But we do not mind paying more and feel a glow of pride, when making a little sacrifice.
(iii) To get an inflow of gold:
When you send goods to others and close your doors to others’ goods, you may have to be paid in gold. This will be possible, however, only when your goods have an inelastic demand and the others either cannot or do not retaliate.
(iv) To develop ‘key industries.’
Key industries are keys to further industrial expansion. They provide machines and materials for other industries. They have a strong case for protection if they need help. Chemical and metallurgical industries are of this type. They serve as a base for the national economy. They are essential for the defence of the country in war and its prosperity in peace. This was a very strong argument for the Government of India to protect India’s heavy chemical industry.
(v) To attain self-sufficiency:
When the government wants to make the country independent of foreign supplies, protection is necessary. Complete self-sufficiency, however, is impossible and even a partial one is costly. Therefore, self-sufficiency should be sought for only in essential industries.
(vi) To secure diversification of occupations:
The greater the number of openings for the people of a country, the better it is for their material progress. Too much reliance on any single industry is risky. To keep all one’s eggs in one basket is not a wise policy. Therefore, it may be necessary to encourage some industries with the artificial aid of protection.
(vii) To prevent dumping of foreign goods:
When a foreign country plans to crush our industry by selling goods at a price even below the cost of production, it is a case of dumping. Such a supply of cheap goods might be welcome if it were permanent; but it is usually temporary. It is done to kill competition and then to make up all losses by charging higher prices. Anti-dumping duties are, therefore, justified to save the home industry.
(viii) To create employment:
Protection helps to develop industries, and it creates more employment. There is no doubt that the development of sugar and other Indian industries under protection provided a large volume of employment.
(ix) To correct adverse balance of payments:
Sometimes, protection is given with a view to correcting an adverse balance of payments. Protection reduces imports, and the balance of payments situation can thus be improved, although temporarily.
(x) For the country’s defence:
Adam Smith asserted that ‘defence is better than opulence’ and ever since then the exigencies of preparedness for defence have been an important justification for protection. Certain industries which produce defence materials and equipment such as arms, ammunition, tanks must be protected.
(xi) To safeguard the interest of high -wage labour:
Sometimes it is argued that in the absence of protection, the highly-paid labour of the industrially advanced countries would be exposed to the competition of cheap foreign labour, and that the products of their high-wage labour can be undersold by those of “pauper labour” from abroad.