Importing Consumer Goods

What will such imports mean in economic terms? Will they, as so many fear, lead to a giant sucking sound as foreign exchange reserves are expended on financing such imports, which cater only to the needs of the rich? Or will they lead to a more sensible pattern of resource allocation that will make the economy more efficient over time? The answer to the first question, which has often been exaggerated in the past to justify protectionism, is an unambiguous no. Since duty rates are high, and likely to drop in measured doses, and since accretion to the permissible list will be slow, it is reasonable to assume that the level of imports on the consumer goods account will be low in relation to the overall imports.

 

One estimate puts the expected figure at $400 million annually. Whether that is an underestimate should soon become clear. It probably isnt. As for the second question about better resource allocation, it has often been argued in these columns that because consumer goods have enjoyed total protection, foreign investment tended to flow into the production of those goods and that this was bad for the economy as investment became skewed. This tendency should now diminish, as investors can no longer be certain about how much tariff protection will be available in the future. Likewise, in the matter of quality too, there will be pressure on Indian producers to pull up their socks. All told, therefore, the decision will set off a chain of outcomes which can only benefit the economy in the medium term.

There is also a third benefit which will not always be visible but whose importance cannot be underestimated. This is that Indian trade negotiators will now have more to bargain with, unlike in the old days when they had nothing to give in return for what they were asking. In that sense, also, the economy will benefit as better deals can be struck through a genuine process of give and take.