June 10, 2023

Is it good for India to be misguided by some other nations and put up tariff barriers or root for import substitution to shore up manufacturing in the country? The record of the last three decades, when the Indian economy has prospered the most, doesn’t suggest that it is the best way. After controls were removed from 1991, the openness and removal of restrictions gave a huge boost to the economy. Globalization and its attendant benefits ensured that India grew at a fast pace.

But the Narendra Modi government is taking India back in time when controls and restrictions ruled and entrepreneurship was a difficult task. Maybe to make a success of ‘Make in India’ or maybe under pressure from the Swadeshi lobby in the RSS, the government is working on import substitution while simultaneously raising tariffs on a host of imported products. While no one can object if tariff is raised on products that are being dumped by other countries and are harming local units (like it was done for steel products when China started dumping cheap steel in India), Indian industry cannot be protected by higher tariffs per se.

The government must recognize that the best way for ‘Make in India” is to remove entry barriers, reduce tariffs and work on ease of doing business to make manufacturing in India an attractive and monetarily viable option for foreign producers who sell their products here. This cannot be done if tariff or non-tariff barriers are put in place. Import substitution with low standard Indian products is not going to work. If reforms are not pushed through and entry barriers remain, technology transfer for producing optimally will not happen. Unless that happens, Indian manufacturing will not be competitive and the end-consumer will suffer.