Electronic hardware may up fiscal gap more than oil

Electronic hardware products like microchips, mobile phones, and semi-conductors, which have contributed to India's burgeoning import bill, may in the near future contribute to the widening trade deficit even more than oil imports.

The issue came up for discussion at a business session aimed at disseminating India's policy at the World Trade Organization (WTO) ministerial in Nairobi and attended by commerce secretary Rita Teaotia and top commerce ministry officials.

On the sidelines of the event hosted by the Confederation of Indian Industry (CII) and Centre for WTO Studies, a senior commerce ministry official said the initial decision in 1997 to allow duty-free import of 217 items is now widely seen as a historical blunder.

India is a signatory to the Information Technology Agreement (ITA 1) as a member of WTO. Under the agreement, member countries should allow duty-free import of products falling under eight categories covering telecommunications, computers, and semiconductors, like mobile phones and electronic chips.

While ITA allowed import of finished product duty-free, domestic manufacturers paid taxes on import of components used for making a complete unit. This made local production of electronic products expensive and wiped out almost entire hardware production in India.

Official trade figures by the commerce ministry support this: In December 2015, the import of electronic goods increased by more than 21 per cent to $3.81 billion, whereas petroleum and crude oil imports fell by more than 33 per cent. While the figures represent a massive fall in global crude oil prices, experts point to the high growth in electronic goods import even though overall imports showed declining trends. In other matters, commerce secretary Rita Teaotia said her ministry is holding consultations with other ministries with regard to implementing and moving forward on the outcomes of WTO ministerial in Nairobi.

Teaotia said all ministries related to trade were part of the consultation process and the commerce minister has chaired these meetings. "The implementation and implication of the Nairobi package as well as the way forward has been discussed in detail with all the ministries," she said.

A senior ministry official said a presentation had been made to the agriculture ministry that has been asked to raise red flags on trade policy for agricultural commodities.

The WTO has recognised developing countries' rights to seek recourse to Special Safeguard Mechanism (SSM) for agricultural products. But the recognition does not guarantee an SSM, which helps countries raise tariffs in case of surge in imports or dip in global commodity prices.

Creation of SSM is still subject to future negotiations.

On the critical issue of public stockholding for food security purposes, the deadlock has not been broken with developed countries led by the United States actively opposing the move.