Countries, including India, are on a mode to resort to protectionist tariff policies.
But the larger implications of the trend demand a deeper understanding of the outcomes of such trade relations.
What was the policy shortfall?
An acknowledged policy mistake in the initial decades of independence is protectionism.
Protection of domestic industries was aimed to be achieved with high import tariffs.
However, it fell short of providing a fillip to either industrial growth or domestic employment or consumption.
Also, these policies resulted in India lagging behind its Asian counterparts.
For the past three decades, the trade-led growth of China has been noticeable.
Failure to adopt such policies partly explains how India missed the growth prospects.
What is the current scenario?
There is a rising tide of protectionism across the world, with possibilities of even a trade war.
Protectionism is now getting to be a major threat facing the world, especially for emerging economies.
India too had raised import duties on close to 50 items recently.
It has also raised import duties on as many as 328 textile products by up to 20%.
India had also announced higher safeguard duties on solar cells imported from China and Malaysia.
It is considering raising import duties on certain items that are imported from the US, as retaliation.
The government is also learned to have set up a panel to examine import duty hikes on consumer goods such as televisions, refrigerators and washing machines.
What are the implications?
The measures are indicative of a slide in the Indian government’s support for globalisation and free trade.
Protectionist steps are justified on the ground that they would help domestic companies grow into viable competitors.
But the fact is that protectionism does not benefit the domestic economy.
It rather encourages inefficiency of domestic manufacturers.
It is likely to hurt exports, make domestic goods costlier and reduce benefits to consumers from increased competition.
So in the long term, protectionism is likely to have only a negative effect on industry’s ability to compete globally.
