It is not often that we at the ILR get the pleasure of agreeing with socialists from the left or the right, but this one takes the cake.
The Economic and Political Weekly, known to be a rather left-leaning publication, has just pointed out what we have been saying for all along – tariffs don’t work !
Here’s a link to the full article. The relevant part is this :
The most disappointing measure, however, is in raising the customs duty on a variety of products. In fact, both the language used in announcing the increase and across the board increase in the duties raise the spectre of return to protectionism.
The economy has suffered enough on account of the import-substituting industrialisation strategy and we have moved away from this after 1991. In fact, the experience shows that dismantling protection has led to substantial increase in gains in productivity and exports. Have we not learnt any lessons at all? Should we be moving away from joining the global value chains and impart competitiveness to our manufacturing sector by increasing protection? Is “Make in India” a means to make the domestic consumers buy expensive and non-standardised and inefficient goods?
Here again, in the name of assembling in India, the customs duty rates are sought to be levied at lower rates on inputs and higher rates on outputs. Are we not aware that in such cases the effective rate of protection will be much higher than the nominal rate for the final goods? The trend towards increasing protection started four years ago and this budget takes it further. “Make in India” should be to increase our export competitiveness and not for inefficient import substitution. This is clearly retrograde and will substantially wipe out the gains from the past reforms. No country has succeeded in consistently growing fast by limiting its imports and exports and the earlier the policymakers realise it, the better it will be for the country.
What can we say .. good job ! Continue your education with this video titled “Protectionism, Tariffs and Who Benefits From Them” which we posted before, and keep learning from us !