India has to be selective and strategic while taking steps to discourage imports in favour of locally produced goods given the importance of open trade for India’s exports growth, experts have cautioned recently.
Experts said that the whole world would be watching how India balances its desire to be self-reliant and how it engages with the rest of the world.
Santosh Pai, Partner at Link Legal India Law Services said how India prioritises its economic growth and political tensions with China would be an important signal to watch out for in the forthcoming budget for FY21-22.
“That is a very careful balancing act. We cannot be inward-looking and protectionist because that is not going to help us with the rest of the world. At the same time, we had to reduce our dependence on China, which was a real requirement… The whole world will be watching this balancing act,” said Pai, referring to a ‘U’ turn India has taken on trade with China.
Ajit Ranade, President and Chief Economist at Aditya Birla Group, who took part in the discussion, cautioned that rising import tariffs was worrisome. He said that the long journey of steadily decreasing tariffs from 1991 saw a kind of reversal from 2013 onwards.
“If you look at the last five-six years, overall average tariffs have gone up by five percentage points. That is a little worrying because all said and done, India’s exports also have an import content,” Ranade said. “We have to selective and strategic about protectionist actions,” said Ranade. Exporters, however, have schemes available to import inputs duty-free.
Ranade pointed out that given the high import dependence India has on China on items like electronic goods, organic chemicals, automotive parts, pharmaceutical ingredients and compressors for air conditioners, building local capacity may take time. “There is no way we can build this capability overnight,” he said.
Saon Ray, a Senior Fellow at Indian Council for Research on International Economic Relations (ICRIER), who also took part in the discussion, said textiles sector may be in for tariff protection. “If you look at the production linked incentive scheme which has come about, it has already spoken about protecting ten sectors. Of all the sectors that have been identified, textiles stand out as there is need for some protection there as we make more and more of personal protection gear and those kind of items,” said Ray.