The defence ministry on Sunday announced a ban on import of 101 defence items to create domestic manufacturing of ₹4 trillion in six to seven years to protect local industries. The move is in line with the Centre’s push for self-reliance. Mint explores the issue in detail
The defence ministry on Sunday announced a ban on import of 101 defence items to create domestic manufacturing of ₹4 trillion in six to seven years to protect local industries. The move is in line with the Centre’s push for self-reliance. Mint explores the issue in detail.
There are two kinds of policy instruments that are used by governments to regulate international trade, one being import tariffs like custom duties and the other being quantitative restrictions or quotas. Import tariffs allow for import of certain items after paying a tax, while quantitative restrictions limit the amount of goods that can be imported into a country. A ban on import is a type of a quantitative restriction that prohibits import of an item in the country. With a ban on imports of defence equipment, our defence forces will now have to meet their requirements through domestic manufacturers.
How are they different from licenses, quotas?
They key difference between the import bans that have now been imposed and the licences and quotas that existed before 1991 is that there are only a few items under the negative list that require permission or licences from the government. Unlike earlier, for all goods outside the negative list, people can set up businesses and produce goods and services without having to procure a government licence before manufacturing an item. The same is true for imports where only specific items require prior government permission or can only be imported up to a certain quantity.
Will import bans help lift the domestic industry?
India has tried various forms of protectionism in the past to assist domestic manufacturers, from import tariffs to quotas, but these did not have the desired impact. The key issues are land laws, labour laws, availability of affordable electricity for industries, high cost of taxes and capital along with issues related to enforcement of contract.
Most advanced economies provided protection to their local industries during the early periods of industrialization. Many South Asian countries combined protectionism with domestic reforms, which led to the creation of an incentive structure for firms to look at export-oriented markets. A key element of the self-reliance move includes a strong push for reforms across sectors. This, combined with the proposed land and labour law changes, suggest a push towards making domestic manufacturing competitive.
Is there a chance for clock turning back?
Many people have cautioned against the possibility of Atmanirbhar Bharat turning the clock back to a period of licence-quota raj because of the increase in tariffs and import bans. However, it is noteworthy that India allows liberal foreign investment inflows, as against the situation before 1991. We are inviting foreign firms to invest for catering to our domestic market. However, we must be careful as India has the chance to integrate with global value chains.
Karan Bhasin is a Delhi-based policy researcher.
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