India Must Lower, Not Raise, Tariff Walls
In an interview to this newspaper, Niti Aayog’s outgoing vicechairman Arvind Panagariya has rightly pitched for lowering India’s peak Customs duty to 7% from10%. Restarting the reform, that began in 1991 but got stalled after 2007-08, will enhance the quality of our domestic produce, make our products more competitive in the international market. The ideal goal is a uniform import duty on raw materials, intermediates and final products, to give all lines of value addition the same effective rate of protection. But there is a slide towards protection now with the government imposing anti-dumping duties on as many as 93 products — steel, metals, chemicals and petro chemicals, electric and electronic items and consumer goods. True, a strong rupee makes imports relatively cheap. But raising tariff walls would breed domestic inefficiency and trigger retaliation by trading partners.
Similarly, other moves such as levying an import duty on mobile phones to protect domestic phone-makers or on 4G equipment imported by telecom firms in the GST regime is unlikely to advance Digital India. The government’s position that 4G equipment does not fall within the ITA-I agreement where India has committed to waive duties is technically correct, but poses a challenge in implementation. Continuing with zero import duties on all telecom and IT products while treating local production as deemed exports and reimbursing the GST they pay is a superior way to protect domestic manufacturers as compared to raising tariff walls. India has welcomed the WTO’s trade facilitation agreement for cross-border commerce in goods, and rightly pressed for a similar agreement of services, given its comparative advantage in services. However, to press home this advantage, India should be accommodative in the goods market.