The need for India to promote free trade and remove protectionism in international trade

The need for India to promote free trade and remove protectionism in international trade

The need for India to promote free trade and remove protectionism ininternational trade


The United States Trade Representative (USTR) in its 2021 “National Trade Estimate Report on Foreign Trade Barriers” has reported that India’s average tariff rate is 17.6%, which is higher than that of any major global economy. higher than.

In order to protect its domestic industries from dumping and other trade distortion practices by China and other countries, India has increased its tariff rates and tightened its other non-tariff measures.

Although trade protectionism can have immediate benefits for the economy, all economists agree that it harms the economic interests of the country in the long run.

tools of protectionism

Along with India, other countries adopt various measures to protect their economy from unfair trade practices. Some of the major measures among them are-

Tariff: A tariff is a tax imposed by the government of a country on the import or export of goods. Higher tariffs increase the cost for foreign producers to sell their goods in a domestic market, giving local producers a strategic advantage.
India has one of the highest tariff rates in the world.
Import quota: It is a measure to numerically limit the purchase of a certain commodity from a particular country which ensures that domestic producers will retain a share in the market.
Requirement of local goods: Instead of imposing a quota on the number of goods that can be imported, the government may require that a certain percentage of a commodity be produced domestically. The Indian government adopts this measure for areas such as defense contracts and technology within the country.
Sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT) measure: Under the World Trade Organization (WTO), these two types of measures are allowed to be adopted to protect the health and environment of other countries. They also compel other countries to adhere to a country’s standard in technical products.
Anti-dumping duty: Dumping is the process of selling goods at a price much lower than the market price in order to eliminate competition. India is the leading country to introduce anti-dumping measures to protect the domestic industry from import competition.
According to the WTO, India initiated 233 anti-dumping tests between 2015 and 2019, a sharp increase from 82 such tests between 2011 and 2014.
‘Rules of Origin’: India has amended the ‘Rules of Origin’ under the Customs Act. India has imposed heavy pressure on importers to ensure that the Rules of Origin requirement is met.
It appears that India has imposed this condition so that importers cannot import goods from India’s Free Trade Agreement (FTA) partners.

Arguments in favor of protectionism

National Security: It deals with the risk of dependence on other countries for economic sustainability. It is argued that in the event of war, economic dependence can limit options. Along with this, one country can negatively affect the economy of another country.

Newborn Industry: It is argued that protectionist policies are needed to provide protection to industries in their early stages. Since the market is open, large companies on a global scale can capture the market. This could lead to the end of opportunity for the domestic players in the new industry.

Dumping: Many countries dump their goods in other countries (selling them at a price below the cost of production or their price in the local market).

The purpose of dumping is to increase its share in the foreign market by eliminating competition and thereby establishing a monopoly.

Save Jobs: It is argued that increased domestic buying drives national production and this increase in output contributes to the creation of a healthy domestic job market.

Outsourcing: It is common practice for companies to identify countries with cheap labor and simple governance and outsource their jobs there. This results in the loss of jobs in domestic industries.

Intellectual Property Protection: Patents protect innovators in a domestic system. However, it is very common for developing countries globally to copy new technologies through reverse engineering.

Arguments Against Protectionism

Trade Agreements: India has benefited immensely from international trade agreements. According to the statistics of the Ministry of Commerce, India has signed Free Trade Agreement (FTA) with 54 countries.

They provide tariff concessions, thereby providing opportunities for exports of products belonging to small and medium enterprises (SMEs) as well as a wide range of products.

Against WTO Regulations: India has been a member of WTO since its inception. The rules of the World Trade Organization prohibit the imposition of restrictions on imports from other countries.

Such sanctions can be imposed only for certain purposes like ‘balance of payments difficulties, national security. Such constraints cannot be imposed to protect the domestic industry from healthy competition.

Inflationary tendencies: Protectionist policies like restricting imports can lead to an increase in the prices of goods in the domestic market, which directly affects the interests of consumers.

Non-competitive domestic industry: With local industries thus protected, they have no incentive to invest resources in innovation or research and development for new products.

way ahead

Improvement in ‘ease of doing business’: Although India has made progress in many directions, it is still behind many large countries in indicators such as starting a business, enforcing contracts, and registering assets.

Improving these indicators can help Indian firms to compete globally and gain a larger market share.

‘Make in India‘: The focus should be on promoting innovation, R&D, and entrepreneurship in the country. This will prepare Indian companies to compete in future sectors.

Promoting private investment: This will boost growth, employment opportunities, exports, and demand.

Predictable and transparent business policy: This will give Indian firms an opportunity to plan their capacity and finance in advance. They will be able to allocate their resources for expansion and research and development. This will enable them to become competitive in the international market.

Free Trade Agreements (FTAs): India needs to make effective use of free trade agreements, especially with East Asian countries (ASEAN), Japan, South Korea, etc., for investment, exports, and technology transfers with these countries. -Providing can be promoted.

Solution of trade-related problems: To clear the doubts of investors in the Indian trading system, trade-related problems with America and other countries should be resolved as soon as possible.

Conclusion

India needs to strike a better balance between the interests of the domestic industry and provide trade concessions to attract foreign investment in the form of FDI from multinational companies.

Achieving the goal of building a $5 trillion economy by 2025 requires a comprehensive, multi-sectoral and multi-sectoral effort.

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