India: Clamouring for protectionism rises

  • Two rounds of customs duty hikes by the government to check import of “non-essential items” has increased the clamour for further protection, with some ministries too joining industry players to seek higher tariffs. From lithium-ion batteries to toasters and vinyl flooring, the list is long and growing by the day, finance ministry sources told TOI.
  • With widening of the current account deficit, the government responded by first raising import duty on 19 items — including diamonds, footwear, refrigerators and air-conditioners — in a bid to reduce imports.
  • This was followed by a second round of hike, which largely focused on telecom equipment as the government sought to get overseas players to make in India.
  • In recent months, the Narendra Modi government has shown increased signs of protectionism that has split the Centre, with the PMO and the finance ministry supporting the move, while many others have been critical as manufacturing has not shifted.
  • During the government’s tenure, the talk of low customs duty, meant to benefit consumers and weed out uncompetitive producers, has virtually died down as the average import duty on non-agricultural goods has increased.
  • But this has not deterred some of the departments to write to the finance ministry, seeking fresh duty increase, arguing that it will boost domestic production, seen to be crucial to create jobs.
  • In most cases, the higher tariffs are meant to target Chinese imports, which are seen to be flooding Indian markets in several segments such as electronics. Sources said ministries and departments have demanded a duty hike for at least two dozen items, although the revenue department is yet to take a call on it.
  • Officers suggested that the increase was meant to be a signal and not part of an overall strategy to discourage imports.
  • Government officers themselves concede that the duty action is unlikely to provide any significant relief. The first round of action, which is estimated to cover around USD12bn — or 2.5% — of India’s annual imports, is expected to result in trade shifting to countries such as Vietnam and South Korea, which have free-trade agreements.

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