A remarkable feature of this budget is that it bucks the trend by actually raising customs duty across a slew of essentially labour-intensive sectors. This marks an effort to address the crisis over jobs lost due to FTA-related imports over time, and more recently due to the glitches on the GST front. Some of the sectors sought to be protected are: mobile phones, electronics goods, textiles, footwear, diamonds, furniture, toys, auto components, food processing, edible oils and cosmetics. The move is in keeping with the draft industrial policy 2017 which observes that a “duty structure that favours import of final products can act as disincentives for domestic manufacturers”. It is well known that a flood of cheap ‘Chinese’ goods have taken a toll on India’s small industries, be it toys, mobiles, stationery, capital goods and electronics items. A category of increases in tariffs can be ascribed to the Chinese threat, such as mobile phones (15 per cent to 20 per cent), adapters and phone chargers (nil to 10 per cent), LCD panels (7.5 per cent to 15 per cent), smart watches (10 per cent to 20 per cent), candles (10 per cent to 25 per cent), cigarette lighters (10 per cent to 20 per cent), sunglasses (10 per cent to 20 per cent) and silk fabrics (10 per cent to 20 per cent). Footwear duties have been doubled from 10 to 20 per cent. The Economic Survey 2016-17, however, observes, “India’s share of global cattle population and exports of cattle hides is low and declining. This trend can be attributed to the limited availability of cattle for slaughter in India.” The ban on cattle slaughter has certainly not helped here.
The curious case of leather exports points to a bigger problem — of the Government’s rather muddled approach to trade policy. For instance, the imposition of higher duties on electronics goods, including phones, goes against the WTO’s Information Technology Agreement 1996, which mandates zero tariffs on electronics goods. India may well be dragged to WTO over the recent tariff increases. Its argument that the very notion of mobile phones has changed considerably since then seems unconvincing. The move to raise tariffs goes against India’s reported inclination to slash these across the board in its talks with the Regional Comprehensive Economic Partnership countries, led by China. While it is technically true that the budget proposal will not apply to FTA countries, that may negate much of its effectiveness.
Tariff protection and local sourcing norms can run foul of international pacts (India lost its solar panels case at the WTO on local sourcing). The way out is to promote industry through setting up industrial zones which will reduce the logistics costs. Investment in physical and social infrastructure is a better bet than protectionism. India’s recent move seems to be an effort to cash in on the protectionist climate the world over. Such a strategy has its limits.