Mobile Duty Hike not Good for Make In India, says Economic Times

The government’s decision to increase import duties on a variety of products, including phones and TV sets, is not a good idea. This has been done in the name of promoting Make in India, but experience, of India’s own past and of Asia’s tiger economies, shows that forcing import substitution behind high tariff walls is a bad way to promote manufacture.

Yes, some additional production would, indeed, take place but in sub-optimal volumes and with inferior quality that will not be accepted in export markets. Make in India calls for extensive and intelligent investment by the government and the private sector in critical sectors of advanced manufacturing. Take the phased manufacture programme for mobile handsets, which aims to raise the local value addition in phones sold in India, on average, to 35%, starting with the plastic components, the charger, the cable, etc. Supporting such moves is sound, and the biggest contribution the government can make to this is to clean up the cluttered field of intellectual property — import policy contradicts the patent law, for example — apart from creating cost-effective, efficient infrastructure, at least in industrial parks meant to house production units. Higher duties on OLED panels will fetch the government additional revenue, true, but will not induce local production: unless the government supports firms with the critical mass in R&D and manufacturing capacity of the kind that, say, Huawei mobilised when it started out in the late 1990s, to grow into a telecom powerhouse that today is at the cutting edge of communications technology. At the same time, higher duties will make domestically produced phones more expensive for Indians to own and use, adversely affecting their productivity. Higher import duties and tax exemptions are expedient tools of promotion while the effective ones call for intelligently planned expenditure to plug gaps in infrastructure, technology, standards and the ecosystem.

India must strive to bring down its peak and average tariffs further, converging them to, say, 5% on anything and everything.