Why the proposal to raise import duties on non essential items must be abandoned

Why the proposal to raise import duties on non essential items must be abandoned

True atmanirbharta lies in India producing not just for itself, but also the world — and earning foreign exchange to be able to import things it needn't or cannot produce competitively. Atmanirbharta should not become a backdoor entry for protectionism.

The Narendra Modi government, according to a report in this newspaper, is planning to raise import duties on all “non-essential items”. Non-essential would cover not luxury goods — the likes of Giorgio Armani perfumes, Johnnie Walker single malts or Bentley limousines — but those for which “adequate domestic manufacturing capacity” exists. Individual ministries would identify and prepare a list of such goods based on a “granular” assessment, following which their tariffs will be hiked. The whole idea reeks of protectionism and should be immediately abandoned. This isn’t simply a throwback to an earlier pre-reform era, when the infant-industry argument was used to justify protection against international competition. Here, higher import duties are being proposed neither on luxury nor newborns, but on products of fully-grown and mature adult industries. There can be nothing more perverse than mollycoddling those requiring no nurturing.

Infant industries apart, import substitution was another rationale for protectionism offered by Nehruvian era policymakers. Those very ideas are gaining acceptance, ironically, under a regime that has left no stone unturned in destroying the last vestiges of a past they label as inglorious. Between 1991-92 and 2007-08, India’s peak customs duty on non-agricultural products had come down from 150 per cent to 10 per cent. That trend has reversed, especially during the Modi government’s tenure. The country’s average applied import tariff, which stood at 13.5 per cent in 2014, rose to 18.3 per cent in 2021. The last 4-5 years have also seen an aggressive deployment of the “granular” approach, with import duty increases in diverse products — from solar modules and cells, mobile phone parts, smart meters, earphones and loudspeakers to apples, almonds, sodium cyanide and umbrellas. All in the name of protecting and promoting domestic industry, of course.

The fundamental problem with the “granular” approach is that it favours one industry over the other: What may be output for one (say, steel or polyester staple fibre) is input for another (automotive and clothing makers). Inevitably, the one that lobbies best benefits the most, even as the focus of CEOs moves from factory floors and dealerships to the corridors of North Block and Udyog Bhawan. The losers are the consumers and user industries. True atmanirbharta lies in India producing not just for itself, but also the world — and earning foreign exchange to be able to import things it needn’t or cannot produce competitively. While the Modi government’s Production Linked Incentive scheme to invite investments from both domestic and foreign manufacturers in specific industries is consistent with this objective, the same cannot be said about erecting tariff walls to ward off import competition. Atmanirbharta should not become a backdoor entry for protectionism.