Import Surge Unlikely In Consumer Goods

The move to liberalise trade restrictions will not result in a flood of consumer durables imports and consequently will also not put any pressure on the balance of payments (BoP), say government officials.

Back-of-the-book calculations show that the increased imports on this count would measure $400-500 million in the first year and then taper off to about $100 million in the following year. Most of the items are available in the country and the only difference is quality. This segment of the demand is negligible, the officials said.

Besides, with most of the segments like televisions and refrigerators being dominated by foreign companies through joint ventures in the post-liberalisation phase, an adverse impact on domestic players, too, is unlikely.

 

The question is how domestic is the domestic industry? Most of them have foreign alliances or are individual operators in the market. So, the argument that if you liberalise there would be a flood and domestic industry will be hit is not really tenable, says an analyst.

Indeed, analysts argue that the move to retain restrictions on quantity while liberalising industrial investments would only extend unfair incentives to foreign players. The government should have liberalised trade first and industry later. In that way, we would have got investments at global costs, they opined.

The items put on the open general licence (OGL), including cameras, cosmetics, perfumes, beverage cans, small colour televisions and stationery items, will, on an average, attract a duty of about 80-85 per cent - well above the peak tariff rate of 45 per cent on imports.

Under World Trade Organisation (WTO) rules, India is within its rights to place a tariff higher than the prevailing peak rates on items that were previously restricted in terms of quantity. These will be taken up in the tariff negotiations held every four years, the officials added.

The latest move, the officials explained, was part of the government's efforts to gradually withdraw quantitative restrictions on imports and replace them with tariffs. Under the WTO obligations, quantitative restrictions cannot be sustained unless and until they are justified due to balance of payments (BoP) considerations. Besides India, only six other countries exercise such restrictions.

The officials explained that India had found it difficult to justify, especially with $20 billion in reserves, its stand at the recent on withdrawal of quantitative restrictions at Geneva under the auspices of the WTO. They explained that the present move, which in the normal course should have been announced in the Exim policy slated for April 1, was part of the government's efforts to mollify its critics internationally.

The government now appears to be veering round to the view that barring a few items - agriculture, textiles, gold and silver - on which it would like to retain control, other items would not attract quantitative restrictions.

Instead of placing the remaining items abruptly on OGL (with an accompanying tariff), it has preferred to use the transitional route by placing them first on the list of special import licence (SIL). Items under this can be imported against a transferable licence, which currently commands a premium of about 10 per cent.

Since an SIL is made available against exports, this route implies an indirect ceiling on the total quantity of imports in a year. For the government, it is also like testing the waters and can help it assess the relative attraction of such imports, the officials added.