Quality control order rollbacks should be the start of bigger cleanups

The government defers quality control orders on steel and chemicals, signaling a shift from a protectionist trade regime that hurt downstream industries

The rollback or deferment of about 80 quality control orders (QCOs), mostly Steel (55), chemicals (14) and non-ferrous metals (8), by the government in recent weeks is a clear admission that disguised protection to large industries through indiscriminate use of QCOs (about 750) is hurting the downstream user industries. This welcome step should mark the beginning of more actions to eliminate all tariff and non-tariff barriers that protect the big businesses at the expense of the smaller ones.

 

Barring some exceptions, Indian producers are not globally competitive as our stagnant share of 1.8 per cent in global exports in the last 11 years shows.  To protect them from competition, the government has raised the tariffs from an average of about 13 per cent in 2014 to about 17 per cent now. It has also imposed anti-dumping duties on about 180 items, safeguard duties on 5 items and anti-subsidy countervailing duties on 18 items. Investigations have been launched for imposing anti-dumping and other duties on about 70 items, mostly chemicals and metals. 

 

Besides, the government has imposed minimum import prices (MIP) requirement on over a dozen items like paper boards, synthetic knitted fabrics and soda ash etc., pre-import registration requirements on steel, non-ferrous metals, electronic and semiconductor chips, paper etc. and licensing requirements for imports of items such as computers, laptops etc. In short, protectionism has grown in the last 11 years through tariff and non-tariff barriers.  

 

Recently, Prerna Prabhakar of Centre for Social and Economic Progress studied all the QCOs and found that the sectors most affected by QCOs are also those characterised by a high concentration of market power and domination by large firms. Predominantly, QCOs are concentrated in intermediate and capital goods—the backbone of domestic supply chains. This poses significant risks to the competitiveness of India’s industrial output, she warned.

 

In a research paper published as far back as in 2002 for Indian Council for Research on International Relations titled ‘Anti-dumping law and practice: An Indian perspective’, Aradhana Agarwal found that in India, protection of domestic producers and not strict “fair trade” concerns appear to be the dominant motivation for imposing anti-dumping duties. Also, since the Indian law does not require a “public interest” test, injury to consumers or downstream industries is not systematically weighed before duties are imposed. This tilts the instrument towards a producer-interest bias, especially favouring large, organised petitioners, she cautioned. 

 

Subsequent papers by her and some others have also stressed these points. So, the problems of downstream user industries were well known. The bias was systemic. The new development is that the government appears to be waking up. The government must now announce a phased tariff-reduction plan giving reasonable time for the domestic producers to make suitable adjustments, make ‘public interest test’ mandatory before imposing anti-dumping, safeguard and countervailing duties  — as the European Union law does, identify and eliminate inverted duty rate structure, limit QCOs strictly to address safety and quality concerns of consumers and abolish pre-import registration requirements that serve no useful purpose and impose MIP only as measures to protect small manufacturers temporarily.

 

A high-tariff, high-regulatory-friction regime is incompatible with the ambition of becoming a developed economy .We must abandon a trade regime that protects incumbents at the cost of competitiveness. Breaking down tariff and non-tariff barriers that serve narrow interests is essential if India is to build globally competitive businesses.

 

Email: tncrajagopalan@gmail.com