India is turning protectionist. It is raising import tariffs since 2014, imposing more anti-dumping duties than any other country is and in the process of protecting weak domestic companies from competition. These are the very trade policies that failed India in the past. That's the key thesis of a paper presented by former Niti Aayog vice-chairman, economist Arvind Panagariya at the Exim Bank Commencement Day lecture.
As an example, Pangariya points to India's experience with nurturing the electronics industry via import substitution since 2014. “What has this policy achieved in 6 years", he asks "Imports of electronics goods have gone up from $32.4 billion in 2013-14 to $55.6 billion in 2018-19, while exports inched up from $7.6 billion to $8.9 billion over the same period," says Panagariya. "Predictably, protected and subsidized, several mobile phone assembly firms have come up during these years but they have not added up to vibrant electronics industry. Nearly all locally owned firms are small by global standards with none that is about to turn into an export powerhouse", he adds.
Panagariya's analysis of the electronics sector policy, makes one doubt if the government's recent Production Linked Incentive scheme which aims to create a 2.4 lakh crore IT hardware export sector in India via subsidies will succeed and whether these companies will be able to survive once subsidies end,
Panagariya's key thesis is that India's best growth years were from 2003-2013-14 when India had the lowest import tariffs.
Two tables in his paper are key:
TABLE 1: INDIA’S GDP GROWTH FROM 1951-52 TO 2019-20
Table 1 shows that India’s growth has been slowest from 1965 to 1980 when tariffs were as high at 350%, while GDP shot up after tariffs started coming down since 1991.
The following table 2 shows that India’s tariffs after dipping to a low in 2010-11 , have started rising since 2014, and now are at the highest in ten years
Table 2: INDICATORS OF PROTECTION 1990-2020-21
Not just tariffs, India is a serial offender in the usage of antidumping measures, says Panagariya. The total stock of cases with anti-dumping measures as of June 30 stood at 243 for India, second only to the US at 398. But then the US has 13% of world merchandise imports. India accounts for just 2.53%, he says. In fact from Jul 1 2019 to June 30 2020, India initiated the highest number of anti-dumping cases at 98, while the US was at 71 and Australia came next at 15. And contrary to popular perception, Panagariya points out that only 18 of these 98 cases of anti-dumping were on Chinese goods. The rest 80 were on competitively priced imports from other countries.
Panagariya thus proves that India has been systematically protecting weak domestic companies.
The bigger implication of this is “scarce resources are getting invested in capital intensive uncompetitive industries and resources are being denied to low-cost labour-intensive export-oriented industries”, says Panagariya.
(Edited by : Aditi Gautam)
First Published: Mar 21, 2021 8:23 AM IST
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