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  3. Higher duties will not promote manufacturing but may lead to inefficiency: SBI Research

Higher duties will not promote manufacturing but may lead to inefficiency: SBI Research

03 Nov 2020 Evaluate

Amid the government hiking import duties on a slew of products to help boost local manufacturing, SBI Research in its report has pitched for lowering such levies and said that higher duties will not promote competitive manufacturing but may lead to inefficiency. It noted that since the beginning of 2000, successive governments have been eyeing a quarter of the Gross domestic product (GDP) to come from manufacturing by 2025 but not much has moved in that direction.

As per to the report, between 2004 and 2017, the incremental gain in the country's manufacturing global share is a low 1.5 percentage points to 3 per cent, while China has gained a whopping 18 per cent share. It also noted that even with such a negligible gain, the country is the sixth-largest manufacturing economy globally, controlling 3 per cent of global output. It said ‘if we were to build self-reliance, increasing tariffs is not the way to go. Rather, the focus should be on building the right infrastructure that can help make our manufacturing more efficient, which can make our exports more competitive.’

It further said a mere 1 percent hike in import duties leads to a $2 billion worth decline in imports on average. In the export basket, it said the highest share is of consumer goods, followed by intermediate goods and these two attract the highest tariffs in the import basket, thus making a case against the fact that higher import tariffs have not protected these industries. On the contrary, it said ‘other countries with much lower tariff structures than ours have built strong manufacturing bases, which have helped them in exports. High tariffs are impacting the country's position in global value chains, wherein both backward and forward integration is needed.’

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