Fact Check

Electronics Import Duties: Reform Reversal or Boost to Manufacturing?


The Indian Express article ‘Reversing the reforms’, published January 18, 2018, talks about import duties on several electronic items being raised. It calls the tariff hikes as a partial reversal of the trade reforms begun in 1991. The article goes on to allege that Make in India is being captured by protectionists for their own benefit. It further says that lack of foreign competition will enable domestic producers to exploit Indian consumers through high prices and low quality.

The article appears to demonstrate a more than rational and less than factual approach to the question of raised import duties. For instance, it significantly misses out on foreign investment.

In fact, it may be possible to show that the arguments made by the article could be the exact reasons why this move may prove essential in the current context. Let us understand how.

What About Eased FDI Norms?

The article raises the alarm by arguing how the increased import duties on electronics is a reversal of the reforms that began with the liberalisation of the economy in 1991 — and how this will eventually lead to a snowballing of import protection.

First of all, India today does not carry its pre-1991 licence raj baggage any more. It is market economy, one of the biggest in the world and also one of the two fastest growing major economies. Thus, it would seem that the government of the day could protect the interests of the economy by whatever means it deems fit and whenever.

Second, the article misses out on the fact that the present government has consistently eased FDI norms, with its latest decision allowing 100% FDI under the automatic route for Single Brand Retail Trading and in Construction Development.

In 2016-17, India received a total FDI of $60.08 billion, which has been an all-time high. It seems that the writer completely forgot these facts or deliberately omitted the same.

The Electronics Sector

Now, why did the government feel the need to use its emergency powers under the customs laws to specifically target the electronics sector when it came to raising import duties? It was apparently because of the status quo in the sector.

The electronics manufacturing industry received a tiny part of the total FDI coming into India. From April 1, 2000 to June 30, 2015, it received only $1.68 billion, or 0.66%, of the total FDI inflow of $258 billion.

While the electronics industry contributes 15.1% to the GDP of South Korea and 12.7% to China’s, in India, it has been a mere 1.7%.

The article raises questions as to why import duty on LCD, LED and OLED displays have been hiked. The answer seems to be this very reason mentioned above.

OEM (Original Equipment Manufacturing)/ ODM (Original Design Manufacturing) is still in its infancy in India. It cannot be boosted when cheap imports are dumped on the Indian economy from neighbouring countries. It appears that this can be done only when we incentivised these to be made in India itself.

Wrong Notion on Jobs

The article keeps harping on how the decision may lead to less labour-intensive products and fewer jobs.

In practice, therefore, what the writer seems to end up implying is that because India has traditionally been exporting raw materials, and because these industries have had more labour-intensive jobs, India should keep doing so and not foray into manufacturing quality goods and equipment by automation or hi-tech – as in leave that to China or South Korea, which countries can use automation and hi-tech to manufacture such products and export them to India.

Now, coming to the question of quality and consumer exploitation, it seems that the article is suggesting Indians are incapable of manufacturing quality products and, therefore, should rather import them. But the article seems satisfied with the status quo wherein India is a big supplier of raw material. Again, the writer appears to have forgotten that Indian manufacturing is not stuck in the licence raj pre-liberalisation era in terms of technology, quality and expertise. Would it be wrong for them to be given an enabling environment?

Now let us talk about imports. Between 50-60% of the electronic products and 70-80% of the components are imported. When India presents a huge market to these companies, why don’t these countries manufacture in India itself? It will lead to more jobs in the country, while domestic manufacturers will also benefit from the competition and quality standards would only improve.

Let us take one example. If a brand of smartphone has a big market in India but it sells through stores or online, that hardly creates a significant number of jobs. On the other hand, if the brand manufactured in India, it would create more jobs and the prices of its products in India would also come down.

The article seems to be fine with other countries trying to protect their own economic and industrial interests by not shifting their manufacturing bases to India. Yet, it appears to have a problem when the government tries to protect the country’s industrial interest.