Why is ‘tax’ on imports known as trade barrier? Why did the Indian government impose barriers to foreign trade and foreign investments after independence? Give three reasons.

Tax on imports is known as a trade barrier because restrictions can be set up by the government on the import of goods. Therefore, by increasing the import tax on commodity X, there is less flow of that commodity into the country, which results in less trade with the country. Hence it is a trade barrier.

After Indepdence, the Indian government imposed barriers to foreign trade and investment. This was because of multiple reasons.

a. Since India was a developing country at the time, the government put trade barriers in order to help the country develop. Only essential items could be imported, such as machinery, petroleum, etc, which were necessary to promote economic development.

b. Trade barriers were considered important to protect domestic producers from foreign competition.

c. In the 1950s and 1960s, industries were just coming up in India. If there were no trade barriers at that time, then these industries would not have been able to develop.

It was only around 1991 that India liberalized its economy, in order to increase compettion and improve quality standards amongst producers in the country.