US tariffs: A wakeup call to improve India's trade competitiveness

Last week, any forlorn hopes that the punitive 25 per cent tariffs on Indian goods entering the United States (US) would be rolled back by the President Donald Trump administration evaporated. No one knows how long these tariffs will last, whether services from India to the US, intellectual property, investments and remittances from the US to India and visas for students, and educated professionals from India, etc, will also be targeted. 

 

It is unbelievable that India’s refusal to acknowledge the role of the US in ending ‘Operation Sindoor’ should lead to such harsh measures.  

 

Given that not much can be done about what the US does or can do at this stage, the government has now shifted its focus to immediate relief for exporters and workers affected by the loss of export orders from the US and a package of fiscal incentives to help exporters tide over the immediate crisis. 

 

Last week, the finance minister assured a delegation from the Federation of Indian Export Organisations that the government would extend comprehensive support to the exporters to sustain the growth momentum and asked the exporters to reassure their employees of job continuity even amidst global headwinds. 

 

Besides assurances of such short-term measures, the government is also trying to boost domestic demand through rationalisation and reduction of the goods and services tax on various items, and trying to improve the trade relations with China and Russia.

 

The core issue of enhancing the global competitiveness of our manufacturing sector, however, remains a work in progress. Our share of global exports remains stagnant at about 1.8 per cent, and our compounded aggregate merchandise export growth is only around 3 per cent since 2014. 

 

Our domestic industries keep demanding and getting more protection by ways of higher import duties, more anti-dumping, safeguard and anti-subsidy countervailing measures and non-tariff barriers like quality control orders, registration requirements, import licensing, quotas, minimum import prices and so on. Mostly, such measures have protected the large industries at the expense of smaller downstream user industries.

 

In his economic survey presented in January, the chief economic advisor, in a chapter titled ‘Medium Term Outlook: Deregulation Drives Growth’, said that ‘enhancing economic freedom for individuals and small businesses is arguably the most important policy priority to define and bolster India’s medium-term growth prospects’.  

 

Most of our laws build checks and balances to prevent misuse by the trade, but it is now time to think of checks and balances to prevent misuse of the laws by the government machinery. Also, the use of information technology to ease the processes has helped in a limited way, because not enough progress has been made in simplifying the laws and procedures. The government has formed a committee to look at the deregulation and reduction of compliance burden.

 

In recent years, the government has entered into free trade agreements (FTAs) with some richer countries and is also negotiating a free trade deal with the European Union. 

 

However, their tariffs are already quite low, and so the tariff concessions alone may only partly mitigate the lack of competitiveness of manufactured goods. It is easy to talk about diversification of the export market, but that is difficult because of the higher transportation costs from our shores. Overall, the setback in our trade relations with the US is a wakeup call to improve our competitiveness. 

 

Email: tncrajagopalan@gmail.com