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India’s shift towards protectionism continued with announcements in the 2020 Budget. In the budget, the government announced a slew protectionist measures to lower imports and address India’s growing trade deficit. According to new research, though, this is the wrong diagnosis. India’s trade deficit is more a result of stagnating exports than too many imports, argue Biswajit Dhar and Ramaa Arun Kumar in the Economic and Political Weekly.

In the study, they use historic trade data to examine how all the trade-related announcements in the 2020 budget will affect India’s position in global trade. Data shows that merchandise exports grew by 8% in the current decade as opposed to 17.3% in the previous decade. The growth was even lower in the second half of this decade (at 1.4% between 2014-15 to 2018-19). This slump comes even after India’s major exports, such as electrical and non-electrical machinery, organic chemicals and pharmaceuticals, face low tariffs in global markets. The slowdown in exports is driven by the lack of competitiveness of Indian producers and the failure to meet global product standards.

Despite this, the budget took the protectionist path and focused on increasing import tariffs and removing exemptions. While the objective was to create a level playing field for India’s micro, small and medium enterprises and encouraging domestic production, tariff protection alone is not enough to boost India’s manufacturing sector. The authors argue that India needs a holistic industrial policy that addresses low productivity, lack of credit, weak marketing strategies, lack of product standards and poor infrastructure. Doing this could make Indian exports more competitive and ease India’s trade deficit.

Also read: Union Budget and the Trade Sector

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