Which of the following is a recognized instrument of industrial policy?

• A. Tariffs and quotas.
• B. Targeted subsidies or tax incentives and establishing Special Economic Zones to attract investment.
• C. Deregulation and privatization.
• D. Export credits.

Answer: (B)

Industrial policy is about guiding investment and building domestic production capabilities. Targeted subsidies or tax incentives encourage firms to invest in specific sectors or technologies by making projects financially attractive. Establishing Special Economic Zones creates places with favorable rules, infrastructure, and services that attract investment and help industries scale up. Together, these tools directly influence where and how production expands, which is exactly what industrial policy aims to achieve.

Tariffs and quotas are trade-policy tools that regulate imports and protect domestic producers, rather than directly steering where or how investment occurs. Deregulation and privatization are structural reforms aimed at increasing efficiency and competition across the economy, not targeted industry-support measures. Export credits promote selling goods overseas, which is important for export promotion but not as direct an instrument for shaping domestic industrial development as subsidies and SEZs.