Indian policymaking goes swadeshi

Duty hikes on high-value goods, data protection, among other moves, point to Make in India push

From raising import duties on high value items to proposed data protection norms mandating localisation of digital servers and recommendations of giving local promoters of e-commerce firms more control, Indian policymakers are slowly going the swadeshi way.

From raising import duties on high-value items such as consumer durables and electronics to proposed data protection norms mandating localisation of digital servers and recommendations of giving local promoters of e-commerce firms more control, Indian policymakers are slowly going the “swadeshi” way.

However, experts say that while trade policy has witnessed “protectionist” tendencies in recent times, the same can’t be said for other policy measures such as proposed data protection.

Recommendations made by the Justice B N Srikrishna panel for the upcoming data protection Bill have been panned by global companies present in India. It has mandated that personal critical user data will have to be processed and stored in India, something global majors are unwilling to undertake, citing cost and logistical challenges.

“Similar stringent policies have been enforced in the European Union and elsewhere. As digital transactions gain pace globally, nations would generally want to protect the integrity of their data. This can’t be called an inward-looking policy,” D K Joshi, chief economist at Crisil, said.

The government is also mulling infrastructure status for server farms as well as easy access to physical infrastructure for setting up domestic server centres. A “provision of direct, indirect tax benefits and customs duties rebate” has also been mentioned in the recommendations in the recently released draft of the proposed e-commerce policy.

Yes to e-commerce FDI but with domestic control

The recommendations, coming from a high-powered task force drawn from both the government and industry, also include differential voting rights for Indian founders with minority stakes in e-commerce companies.

Defining an Indian e-commerce firm as one where foreign investment doesn’t exceed 49 per cent and the founder is a resident Indian, it has batted for giving founders more control in one of the fastest growing sectors of the economy that has recently seen foreign entities such as Walmart buying majority stake in homegrown e-tailer Flipkart.

“The investors who put in their money at a premium would like to control voting rights. This is a departure from the regular liberalisation taking place under the FDI regime, especially in a sector where there are no security-related concerns,” said Amarjeet Singh, partner, tax, regulatory and internet business, KPMG India.

The draft policy also supports the establishment of a national body named the Central Consumer Protection Authority (CCPA), to ‘regulate’ the e-commerce sector.

Repeated import duty hike

Multiple import duty hikes by New Delhi in the first half of 2018 have attracted criticism from the United States and China as being examples of ‘protectionism’. In the latest such move, the government is now aiming to go in for a further set of import duty hikes for consumer durables and telecommunication equipment.

If and when the duties are hiked, it will be the fourth instance of New Delhi giving the green light on raising import tariffs in 2018.

“Higher duties on mobile phones and accessories, along with the establishment of multiple major factories such as the one by Samsung in Noida, has successfully cut down on dependence on foreign built mobile phone units. We plan to extend this principle of ‘Make In India’ to other areas of high import dependence,” a senior department of revenue official said.

The Cabinet Secretary will head an official panel aiming to reduce India’s dependence on imported televisions, refrigerators and washing machines. The import bill for these items amounted to nearly $ 2 billion in 2017-18.

Industry demand vs global commitments

Repeated demands by domestic industry to stop the inflow of cheaper alternatives from China and elsewhere have also contributed to the current trend of rising import duties. The government has also streamlined GST rates to help domestic manufacturers of white goods such as small screen TVs, refrigerators and washing machines. Tax has been slashed to 18 per cent, down from 28 per cent, since July 27.

Less than a year before the nation goes to the polls, the move has signaled hope to a cross section of domestic industry including steel, apparel and electronics, which have complained of foreign goods flooding the market.

However, some experts see no relation of cut in GST rates and consequent drop in integrated GST on imported goods and cheap imports. IGST has replaced erstwhile countervailing duties and special additional duties which were on par with domestic duties.