Letters: Effective rate of protection

This refers to the editorial "A 1970s argument" (November 7). Those who know of the tariff rates since the 1970s, and their declining trend, cannot agree with the editorial. The argument is an old controversy between free trade and protection. The level of protection to Indian industry has not remained the same but has declined substantially. In the 1990s, the customs tariff rates were typically 85 per cent for machinery and even higher for consumer goods. The highest range of rates were nearly 500 per cent. Even the baggage rate was 250 per cent. The "collection rate" declined from 47 per cent in 1990-91 to 29 per cent in 1995-96; 23 per cent in 1998-99 to 21 per cent in 2000-01. The"median" or "mode" rate (that occurs most of the times), has come down from 70 per cent, in 1991-92 to 30 per cent in 2001-02, and just 10 per cent in 2013. We are not talking about nominal protection but the effective rate of protection (ERP) that expresses the margin of protection on value added in the production process rather than on the product price. A computation of import-weighted average ERP (Protection in Indian Manufacturing: An Empirical Study by Hasheem Nouroz) shows the following:

The latest figures are not available but judging from the low rates of import tariff, it is clear that it has gone down substantially. Now the rate of duty for machinery is just 7.5 per cent. Steel and chemicals attract 10 per cent. With exemptions, the collection rate of duty on average would be nearly 7 per cent.

So, to dismiss the plea of the Indian industry, to be circumspect about allowing free trade on many items, is not to see the reality but to remain doctrinaire. Effective protection is now practically non-existent. Pertinently, anti-dumping duty cannot be levied if the duty is made zero in a free trade agreement (FTA), which is a concern for Indian industry.

This debate should not have taken place at all. It would be advisable for the commerce ministry to consult the finance ministry and the manufacturing industry before inking an FTA. A rational approach is necessary, not a debate.

Sukumar Mukhopadhyay New Delhi

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