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Former US Official Views India's Tariff Utilization to Shield Domestic Manufacturers as a Return to Pre-1990s Policies


April 17:
According to a former senior US government trade official, India's decision to impose tariffs on local manufacturers is a relic of the pre-1991 era and would significantly reduce the competitiveness of Indian products worldwide.

Prime Minister Narendra Modi's ambitious "Make in India" programme was unveiled shortly after he was first elected to office in 2014. According to Arun Kumar, a managing partner at Celesta Capital and a former US Assistant Secretary of Commerce for Global Markets, the plan's stated goal was to boost manufacturing to 25% of GDP and provide millions of employment opportunities.

“Make in India did not make as much progress as expected, on account of a combination of reasons, internal and external,” he remarked at a symposium on “Making India an Advanced Economy by 2047: What Will it Take" at George Washington University on April 16.
Recent years have been fruitful for India's manufacturing sector, according to Kumar, thanks to both a more competent and self-assured workforce and the efforts of multinational firms to diversify their supply chains away from China.

The Modi government launched the Production Linked Incentives (PLI) programme in 2020 to encourage manufacturing in India and take advantage of these favourable conditions. For the fiscal year 2025, the plan has an allotted budget of US$750 million, an increase of 33% from the budget for 2024. He went on to say that the PLI Schemes' declared goal is to make Indian manufacturing more competitive on a global scale by increasing investments in strategic areas and innovative technologies, as well as by making the manufacturing sector more efficient and bringing about economies of scale.

Kumar informed the conference goers that India has been defending its indigenous suppliers by raising tariffs on a number of product categories. A wide variety of products have witnessed growth in the past three years, over thirty different categories. These include solar inverters, solar lanterns, headphones, loudspeakers, smart metres, private aircraft, helicopters, plastic goods, jewellery, high gloss paper, vitamins, and more.

In late 2023, India shocked the world by imposing taxes on computers and other technological goods. Industry groups, both at home and abroad, were instrumental in getting these pulled. Some of these tariffs appear to have been imposed with the intention of shielding Indian industries from Chinese competitors. He argued that the current trend towards protecting indigenous producers through tariffs was a reversion to the days before 1991, when similar policies had the opposite effect and made Indian goods less competitive on the global market.

According to Kumar, India has always been wary of fully committing to globalisation and trade agreements. We might be witnessing a shift in this domain as of late. Curiously, India was among the first countries to join international trade organisations. The country has been a member of the GATT from its start in 1948 and the WTO since its start in 1995, according to the ex-US official.

India, however, did not reap the benefits of this engagement to its fullest extent. View China as an example. By 1978, China's economy had started to open up. China began its persistent and fruitful lobbying campaign to join the WTO in 1986 and continued for many years, finally prevailing in 2002. China had become the global manufacturing powerhouse in just ten short years. As time went on, Chinese enterprises began to compete with their international counterparts, eventually dominating many industries and purchasing multinational behemoths, he added.

Compared to China, India's global integration in the trade arena has lagged behind since its 1991 economic reforms and liberalisation. India has recently shown signs of becoming receptive to trade agreements. As a result, pacts have been inked with countries including the UAE, Australia, and, most recently, the EFTA bloc (which includes Norway, Iceland, Switzerland, and Liechtenstein).

Kumar stated that the Indian government claims that these three FTAs will increase exports by more than US$ 100 billion and provide more than two million employment opportunities in India. An intriguing element of the EFTA deal is the pledge to spend US$ 100 billion into India over the following fifteen years. Negotiations for India's free trade agreement with the United Kingdom appear to be nearing completion. For for than two years, negotiators have sought an India-EU FTA.

Kumar noted that India will reap the benefits of globalisation in the form of increased trade and investment into and out of the country, which will in turn boost employment, GDP growth, and overall economic prosperity.

India is in a better position than ever before to participate more actively in the global industrial supply chain right now. "To enable greater participation in global value chains, we must maintain our focus on making it easy to do business, facilitate trade, create modern infrastructure, and manage related logistics," he said.

Not only will India's middle class—now estimated at 475–500 million—grow in size and income, but the country will also become a major market for companies in the US and around the world when it becomes the third biggest economy in nominal GDP. "Just like we're seeing in technology, India's productive capacity will find enhanced ways to serve global demand," Kumar stated.