Print Friendly, PDF & Email

India’s protectionist Industrial Policy

GS Paper 3

 Syllabus: Industrial Policies Since Independence

  

Source: BS

 Context: The author discusses India’s protectionist policies in manufacturing and electronics, contrasting them with targeted approaches in the US and EU.

  

What meaning of Protectionist measures?

It refers to economic policies and actions taken by a country to protect its domestic industries, businesses, and workers from foreign competition.

  • These measures can include tariffs, quotas, subsidies, and other barriers that make imported goods more expensive or difficult to access, thereby promoting domestic production and consumption.
  • The goal is to shield domestic industries from foreign competition and support local economic growth.

  

Issues with India’s Protectionist Measures:

IssuesDescription
High TariffsImport restrictions and high tariffs on electronic goods like laptops and tablets, make tariffs the highest among competing economies.
Broad ProtectionismProtective measures spanning 14 sectors, some lacking a clear strategic basis (e.g., textiles, food processing).
Challenges in the Electronics SectorRapid technological changes in the electronics sector make domestic manufacturing keeping pace with global advancements a challenge.
Lack of Targeted StrategiesIndia’s industrial policy lacks targeted sector-specific strategies, unlike the US and EU’s approaches.
Missed Opportunity Failure to fully integrate with global value chains can hinder competitiveness and growth in certain sectors.
Trade Barriers for InnovationExcessive protectionism can hinder exposure to global competition and restrict innovation and efficiency.
Limited Focus on Technological AdvancementIndia’s policy may not prioritize technological advancement, putting it at a disadvantage in rapidly evolving industries.

 

How other countries are applying protectionist measures?

  • US: The US has introduced the CHIPS and Science Act to boost domestic research and manufacturing in semiconductors and electric vehicles. This initiative aims to reduce reliance on countries like China and Russia and enhance “strategic autonomy.” The US-Mexico-Canada Agreement (USMCA) also promotes regional economic integration.
  • EU: The EU’s Green Deal Industrial Plan aims for carbon neutrality by 2050. The Carbon Border Adjustment Mechanism (CBAM) taxes imports from high carbon-output sectors, affecting major exporters like China and Russia. The EU’s approach focuses on environmental sustainability.

 

Both the US and EU use selective protectionist measures. The US emphasizes technological advancement and reducing geopolitical risks, while the EU targets environmental sustainability. Their strategies have specific goals, unlike India’s broader approach.

 

 

What should India do? 

  • Embrace Open Trade in Electronics: Rapid technological changes in the electronics sector make import substitution difficult. Given global value chains and the success of top exporters as importers, India should adopt open trade policies for smoother cross-border transactions.
  • Learn from Asian Economies: China and Vietnam’s success in the electronics sector stems from open trade policies. China’s dual trade regime, allowing duty-free entry for components, boosted exports. India could benefit by adopting similar strategies.
  • Combine Incentives with Trade Liberalization: Following countries like South Korea, India should merge financial incentives with trade liberalization. Shifting from import substitution to export expansion can enhance competition, efficiency, and innovation.

 

The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry, is working on a new industrial policy. This will be the third industrial policy (after 1956 and 1991), which is likely to replace the 1991 policy, which was prepared against the backdrop of the balance of payment crisis.

 

For Broad Objectives of New Industrial Policy: Click Here 

 

Insta Links:

Why an industrial policy is crucial

 

Mains Links:

“Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (UPSC 2017)

 

Prelims Links: (UPSC 2018)

Increase in absolute and per capita, real GNP do not connote a higher level of economic development, if

 

(a) industrial output fails to keep pace with agricultural output.

(b) agricultural output fails to keep pace with industrial output.

(c) poverty and unemployment increase.

(d) Imports grow faster than exports.

 

Ans: C