Why in news?
Central Board of Excise and Customs, has recently notified a customs duty hike ranging 5 to 10% on a range of goods like mobiles, cameras, ovens etc.
What was the reason?
- The government reasoned that this would help in boosting local production, reducing import bills and creating jobs in the country.
- Notably, India imported nearly $42 billion worth of telecom instruments, computer hardware and other consumer electronics in 2016-17.
- The domestic industry sees this as a fillip to the government’s “Make in India” initiative.
- Hiking of Customs duty will also boost tax collections at a time when there is uncertainty over revenue from the GST.
Can local manufacturing really be boosted?
- It is now recognized worldwide that raising import duties is effective only as an anti-dumping measure against another country.
- Imposition of such duties should be done rarely and it must ensure a balance between the interests of the consumers and that of the local manufacturers.
- For turning a country’s domestic industry globally competitive, import duties aren’t considered a desired tool due to its many drawbacks.
- Many companies do not want to manufacture in India as they still find it difficult to do business here - this should to be addressed first.
- Rather than increasing duties, the government needs to sort out the problems companies face in terms of land acquisition, infrastructure, and labour laws.
What are the drawbacks?
- Duty reduction in one sector will trigger hectic lobbying by manufacturers in other industry segments to push for similar protection from imports.
- For Consumers - Import tariffs would reduce competitiveness of the economy and might force the consumers to settle for inferior products.
- The protection provided by higher duties is also likely to reward continued inefficiency of local manufacturers, thereby making goods costlier.
- For the Economy - A protected environment would price out companies that spend on research and development and dis-incentivise innovation.
- This could potentially harm the entire ecosystem and also bring down the export potential of the country.
What will be the international ramifications?
- The increase in Customs duties has already been termed by competing countries as a violation of World Trade Organisation (WTO) norms.
- While India has resorted to these hikes using emergency powers in its Customs laws, it will be difficult to convince players like Japan, EU & US on its veracity.
- Consequently, India’s credibility as a trading partner might come under strain and thereby make external markets less friendly to Indian exports.
Source: Business Standard
