The government last week increased customs duties on imported electronic items. This will make imports less competitive, motivate firms to increase domestic manufacturing and increase tax revenue.
While protective tariffs benefit domestic producers, they always harm the consumer.
Such policies are based on the flawed assumption that consumers don’t have to pay more because they can shift to locally made goods. This does not hold true for many products (microwave ovens, for instance) that are primarily imported.
Also, such selective privileges lead to increased lobbying by those who have been left out in order to be included in the future.
The reason why companies do not manufacture here, despite their access to a huge market, is our poor labour laws, land-acquisition norms and infrastructure, among others. The government would do well to focus on these areas to increase the competitiveness of the economy, which will also boost manufacturing and exports in the medium to long run.
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