he tariff itself (Melitz, M. , 1999) . With the introduction of the GATT dictating tariff cuts and regulations on ‘goods’ as well as ‘agriculture’ since 1947, which post 1994, took form of the World Trade Organization, but withholding the same text regarding tariff regulation- it would make sense to agree with Meltiz’s idea that quotas and local content are better policy instruments. Providing subsidies by the state is another powerful policy means by which can be welfare enhancing, and with help of which, the Import Substitution can be successfully brought about. However, it is important to note that the state must be careful in this provision. Firstly, initial subsidies should never be so high as to cause domestic output to decrease at any point in the future (Melitz, M., 1999) Secondly, industries should be carefully selected for the provision of subsidies. It is of the essence that subsidies be provided to advance Primary Industries. For example, the government of a late developing country could provide subsidy in the ‘steel’ industry from international firms, for a period of ten years. During which period, the domestic industry must produce to meet the domestic demand. Understandably, a large amount of production would be required to make this subsidy economically viable. i.e the steel industry would have a high set-up cost, which is non-negotiable and fixed. Therefore the large production would be essential to make back the capital spent. It is to be noted that the state cannot subsidize a thousand steel mills as that would not lead to profit. The subsidy provided would be to a handful of firms, which are usually family owned conglomerates, i.e a less specialized industrial group that can social and pool the risk, as they are undertaking a long gestating, risky enterprise. For eg the Tata group in India. However, the State must possess the capacity to ‘promote winners’ in this arrangement, and more importantly it must exercise good political power, for example in taking away subsidy from a non performing firm, or prevent a building of oligarchy due to subsidies – which is a difficult task. Therefore, high potential of production in late developing countries, less or no budget for Research and Development, patents and advertising are some major reasons in favor of state sponsored subsidies. IMPORT SUBSTITUTION>