Trade diplomacy: Govt depts red-flag high duties to curb China imports, seek nuance in strategy
- MULTIPLE WINGS IN the government have started to red-flag the Centre’s moves to progressively hike customs duties, especially the more recent offensive targeted at imports of Chinese components and inputs.
Key Highlights
- A section within the government is in favor of a more nuanced approach in using tariffs as a diplomatic tool
- failing which there is a possibility of the gains of India’s manufacturing-focused thrust that include schemes such as Production-Linked Incentive (PLI) being squandered away.
- China still accounts for 14 per cent of India’s imports with not just inputs for the domestic industry in sectors ranging from electronics to pharmaceuticals and textiles to leather,
- But also capital goods, being sourced from China.
- This, coupled with the fact that average tariffs in India have jumped to 18.1 per cent in 2022 from 13 per cent eight years ago in 2014,
- Has made India uncompetitive vis-a-vis countries such as Vietnam, Thailand and Mexico.
- The roadblocks to imports in these sectors is leading to either a loss of domestic output or simply a loss of competitive advantage for Indian manufacturing.
TRADE DIPLOMACY WITH CHINA
- Earlier this year, the Ministry of Electronics and Information Technology (MeitY) relayed concerns about high production cost due to high tariffs to the Finance Ministry.
- MeitY had pushed for a lowering of duties of about 20 per cent on parts including circuit boards, chargers and fully assembled phones, by at least 5 percentage points.
- Moreover, to check cheap quality imports from China, India imposed Quality Control Orders (QCOs) that restrict MSMEs from getting necessary input material.
- WHILE India Inc has mostly been at the forefront of pushing for protectionist measures including tariff and non-tariff barriers
- It is the industry itself which wants the government to reduce duties on imports of capital goods and key inputs across sectors.
- India accounts for negligible share in China’s total trade, but significantly depends on Chinese imports in key sectors including pharmaceuticals and electronics.
- Official data shows that India is home to barely 3 percent of Chinese exports.
- India has chosen to stay out of important mega regional trading arrangements, including the Regional Comprehensive Economic Partnership (RCEP).
- Analysts caution that in some cases where customs duty hikes have been proposed, duties are close to or have effectively crossed the WTO-mandated “bound rates.
- These are the customs duty rates that a country commits to all other members under the MFN principle
- And breaching these rates could effectively put a country at risk of being branded as “protectionist
- The implementation of the duty hike on solar panels from September 2017 was opposed by both the New and Renewable Energy Ministry and solar project developers.
Prelims Takeaway
- RCEP
- Production-Linked Incentive scheme