Tariffs
Context:
Recently, the U.S. Ambassador to India, Eric Garcetti, highlighted that India is the “highest-tariff” major economy in the world and emphasised the need for both nations to work collaboratively on reducing tariffs.
Relevance:
GS-03 (Economy)
Tariff and recent trends?
- Tariffs are taxes imposed on the imports by a country for providing protection to its domestic industries.
- Tariffs increase the price of imported goods in the domestic country, helping the domestic industries to compete with the imports from the other countries.
- It is also imposed on socially undesirable goods that are imported. Example: Custom duty on alcohol.
- Recent trends:
- India has increased its tariffs by more than 3000 times since 2014. The average tariff rose from 13% in 2014-15 to around 18%.
- India’s tariffs are higher in the world as compared to earlier trends of reducing tariffs from 125% in 1990-91 to 13% in 2014-15.
Effect on the high tariffs:
- High import tariffs increase production costs, putting manufacturers at a disadvantage. This reduces India’s export competitiveness compared to nations with lower tariffs.
- Consumers face the burden of higher prices and fewer product options. Industries like electronics and pharmaceuticals are hit hard due to their reliance on imported components, especially from China. For example, the electronics sector struggles with increased costs for parts like circuit boards and chargers.
- Additionally, high tariffs hinder efforts to diversify supply chains away from China. Manufacturers are drawn to countries like Vietnam, Thailand, and Mexico, which offer more competitive tariff structures.
Way forward:
- The government is planning to reduce the tariffs on certain goods. For instance, the import duty on mobile phone components was reduced from 15% to 10%.
- Moreover, it helps increase trade competitiveness and can attract more foreign investments.
