Tariff shelter must be temporary–economic times

Clipped from: https://economictimes.indiatimes.com/blogs/et-editorials/tariff-shelter-must-be-temporary/

The reported move to have a sunset date for high import tariffs on electronic products like mobile phones and TVs makes perfect sense. Artificial value addition behind high tariff walls enriches a few while impoverishing the citizenry, with high costs, obsolescence and incapacity to compete globally.

Reportedly, high tariffs to boost domestic production would have a 4-5-year term limit. In tandem, what’s surely required are innovative industrial and technology policies for Indian producers to build core design and brand capabilities, so as to be globally competitive by duly reaping economies of scale and scope.

The production-linked incentive (PLI) plan envisages that over the next five years, the bulk of electronics production worth over Rs 10.5 lakh crore would be exported.

Hence the imperative to keep the tariff hikes strictly timebound, to build a local ecosystem for cutting-edge manufactures. The Phased Manufacturing Programme (PMP), started in 2016-17, did not quite achieve its goals.

Under the PLI scheme, Apple’s contract manufacturers and Samsung have signed up, along with home-grown players like Micromax and Lava, to produce mobile phones worth at least Rs 9 lakh crore. Electrical and electronics imports added up to nearly $50 billion in 2019-20.

Microchips of various kinds form a very large component of India’s imports and could overtake oil as the single-largest item. While India need not reinvent the wheel and produce everything locally, it is imperative to have technological autonomy, and not be held hostage as Huawei currently is, by US sanctions.

That calls for far greater ambition than is contained in PLI or PMP. India must build competitive advantage in high-end semiconductors and chip design.

We need coherent policy incentives for startups and academia-industry incubators for technology spillovers in microelectronic hardware and integrating artificial intelligence into it. Without dedicated backward integration in technology, Atmanirbhar would ring hollow. Tariffs are no substitute for policy.

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