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Costs of a barrier
Context:
India's tariff policies have undergone significant changes since the early 1990s, moving towards lower tariffs, but recent increases have led to concerns about their impact on trade competitiveness and domestic industries.
Tariff Trends and Protectionism:
- Declining tariff trend (2014-15): India had been steadily reducing tariffs since the 1990s, with the average tariff declining from 125% in 1990-91 to 13% in 2014-15.
- Reversing trend: However, since 2014, there has been a reversal in this trend, with around 3,200 tariff increases, driven by the government's call for self-reliance or atmanirbharta.
- Impact on trade: These tariff increases have raised India's average tariff rate to around 18%, making it one of the highest in the world and affecting trade competitiveness.
Impact on Trade Competitiveness and Domestic Industries:
- Disadvantage: India's high tariffs not only exceed those of competitors like China, Vietnam, and Bangladesh but also place manufacturers at a disadvantage and hurt export competitiveness.
- Loss of competitive advantage: Targeting Chinese imports post the Galwan clash has led to concerns about the loss of competitive advantage in key sectors like electronics and pharmaceuticals.
- Need of better approach: There are growing calls within the government for a more nuanced approach to tariffs to address these concerns and promote manufacturing and exports.
Need for a Balanced Approach and Pursuing Trade Agreements:
- Need of a balancing act: Erecting high tariff walls may benefit inefficient domestic players but ultimately hurts consumers, necessitating a more balanced approach to tariffs.
- Shift in policy: The government has taken steps to reduce import duties on components used in manufacturing mobile phones, indicating a potential shift in policy.
- Important trade agreements: Additionally, signing trade agreements with countries like the UAE, Australia, and potentially the UK and the EU can further enhance India's trade competitiveness and facilitate exports.
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