In the first few Five Year Plans after Independence, India adopted a deliberately inward-looking foreign-trade strategy, with the overriding aim of achieving economic self-reliance and reducing dependence on imported manufactured goods.

This strategy is known as import substitution, under which domestic production is actively encouraged so that goods formerly purchased from abroad are instead manufactured within the country.

To shelter these infant home industries from established foreign competitors, the government relied on a combination of high protective tariffs, import quotas and an elaborate licensing system that tightly restricted the entry of foreign goods.

The twin objectives were to conserve scarce foreign exchange and to build a broad, diversified industrial base capable of meeting the country's own demand, in line with the Mahalanobis strategy of the Second Plan that stressed heavy and basic industries.

Turning to the wrong options: export enhancement and free-trade expansion describe outward-looking, trade-promoting approaches that India moved towards only much later, especially after the 1991 liberalisation, and are the opposite of the early inward stance. Foreign investment expansion likewise refers to opening up to overseas capital rather than substituting imports with home production.

Hence, the inward-looking trade strategy of the early plans is also known as Import substitution.