A close governmental source recently told Reuters that the forthcoming budget may see India raising import duties. This strategy is in place to help promote the domestic manufacturing industry as well as to promote the Atma Nirbhar Bharat Initiative.
The forthcoming budget is said to increase import duty on a variety of goods, including mobile phones, electricals, and electronic components. Additionally, there are talks that furniture makers like Ikea may face heavy duties on their furniture imports. There may also be an increased duty on electrical vehicles, which may potentially hamper Tesla from entering the country.
The glorious LPG policy of 1991 marked India’s entrance into the global trade stage, however, we seem to be heading in the reverse direction now. Atmanirbhar was introduced as a way to reduce dependence on imports because the pandemic has disrupted global supply chains. However, is Atmanirbhar going to be a more long-term stance of the government? The recent speculations regarding the import duty hikes do point towards this.
India is famously known for its high and complex import duties which have discouraged foreign companies from setting up in the country. However, some import duties may cause more harm than good, while others may lead to the emergence of illegal trade.
From a short-sighted lens, promoting domestic manufacturing to be a good option to revive the economy, increase employment and help improve the manufacturing capacity. But if these duties are to be levied on the electrical components that are further used to manufacture electronic goods, this may hurt the said industry.
Additionally, discouraging foreign competition is going to set the country’s innovation to times way back. A healthy amount of foreign competition would force Indian industries to innovate, become more efficient, and priced fairly. Yes, the foreign electronic companies may have an upper hand in technology, but the Indian ones need to upgrade the efficiency. India should be focusing on a different strategy of boosting domestic business rather than import duty. Things like subsidies, protection against predatory pricing, and knowledge sharing are something that should be looked at which will help improve the domestic industry.
Import duties play an important role in international trade, diplomacy, and the welfare of the economy. It is important to understand the broader rationale behind these – is the aim to promote manufacturing in India or is the goal to discriminate against foreign companies. For instance, one should also be on the lookout for any changes in the tax rates for foreign companies.