INDUSTRIAL POLICIES HAVE RETURNED. WHAT'S NEW?

After a reset triggered as part of the post-1991 liberalization process was completed, announcements on trade measures by the Indian government became boring, barely making the headlines. In the early-1990s, India’s peak tariff rate was in triple digits and dominated discussion on economic reform. By 2007-08, that peak rate had fallen to around 10%. Any further changes to trade policy, it was assumed, would just be minor tweaks and not worthy of headlines.

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But it was exactly India’s trade measures that hit the headlines in early-August, when it imposed licencing requirements on the import of computers, a move it back pedalled on somewhat in the face of protests. Ultimately, the government delayed the introduction of the measures by three months, but didn’t reverse it.

Many observers were quick to point out this measure was not an isolated one. In the last few years, after a steady downward trend for many years, India has been increasing its tariffs. The World Trade Organization (WTO), in its review of India’s trade policy for 2021, pointed out that since the previous review in 2015, the country’s simple average tariff rate had increased from 13% to 15.4%.

The number of goods with tariffs below 10% declined to 67.8% of the overall trade basket in 2020-21, from 79.1% in 2015. By comparison, the share of goods with tariffs between 10% and 30% increased to 22.1% of the overall trade basket in 2020-21, from 12.1% in 2015.

In a paper in 2020, Shoumitro Chatterjee and Arvind Panagariya, noting that there had been about 3,200 tariff increases done by India since 2014, said: “India is turning inward. Domestic demand is assuming primacy over export-orientation and trade restrictions are increasing, reversing a three-decade trend."

According to the Global Trade Alert database, which tracks trade policy measures across countries, India has seen a spike in trade measures that could be seen as ‘harmful’ to trade, since at least the last decade. While there is data available for close to 280 sectors, close to one in seven ‘harmful’ trade policy measures have been seen in six sectors—precious metals, jewellery, vegetable oils, oilseeds, organic chemicals and metal waste/scrap.