Opinion | We have miles of roadblocks to remove before we sleep4 min read . Updated: 13 Apr 2020, 10:23 PM IST
The covid crisis has made the unseen effects of regulatory roadblocks extremely visible
For individuals, one of the symptoms of covid-19 is the loss of smell. But for governments, there may be a regaining of sight. Covid-19 has made the unseen effects of many regulatory roadblocks in India much more visible because it is now a matter of life and death.
The first example is that of import duties on medical equipment, including ventilators, protective equipment, masks and testing kits. India has a list of import duties (custom duties plus cesses plus special tariffs) on almost every product. The government’s import tariff list has 98 chapters and runs into thousands of pages, ostensibly to protect the interests of domestic manufacturers. An import duty increases the price paid by the consumer on foreign-manufactured goods and makes domestic goods seem cheaper in comparison.
Rhetoric always presents import duties as a control on foreign suppliers. While dubbing this “the seen effect", Frédéric Bastiat also pointed out the unseen effect. In reality, an import duty is an increased cost borne by domestic consumers—the people of India —who are forced to pay a higher price to a domestic producer, instead of having more money left in their pocket for a host of other valuable uses. Other unseen effects include delays and shortages while the government collects duties and paperwork to release these goods from ports, etc.
Given the shortage of testing kits, unseen effects became extremely visible in the case of import duties on these kits. We normally tolerate the transfer of resources from consumers to domestic producers through import tariffs that operate in the guise of patriotism. But the costs imposed by these import duties became visible in this pandemic because they were imposed on sick Indians who may die or spread the virus waiting for a test.
Hurting sick patients to protect the interest of domestic firms with import duties on medical equipment and kits (ranging from 12.5% to 26%) is now impossible to justify. In a welcome move, the finance ministry issued a notice on 9 April, suspending customs duty and health cesses on ventilators, protective equipment, masks, and testing kits, and inputs for these goods, until 30 September. The scale of India’s requirements surpasses that of most countries affected by covid-19, and there is room for domestic and foreign manufacturers of tests in this crisis. Ideally, after 30 September , these duties will be permanently removed, and Indian firms given a conducive business environment to become competitive, so that Indians pay less for medical equipment.
While the removal of these import duties is great news, we have miles of regulatory roadblocks to remove before we sleep. Companies need approval from the National Institute of Virology regarding the efficacy of the testing kits and an import licence from the Drugs Controller General of India. Many companies have the approval or the licence, but not both. Once again, the unseen effect of cumbersome regulation has become visible, as government hospitals cannot procure tests for covid-19. Now that it has been seen that these regulations can threaten lives, the government has to clear many such thickets of regulation.
Another regulatory cost suddenly made visible is imposed by rules relating to the Agriculture Produce Market Committees (APMCs) that have shackled farmers for decades. Under the guise of protecting farmers, the government has severely limited the market for their produce by dividing the market geographically into different regions and insisting that farmers can only sell to a mandi in their region. Mandi licences are typically given only to those with political patronage and often as a side business for politicians. The farmer receives depressed prices, while the final consumer pays a high price for the same produce. Most of the money goes to politically-blessed middlemen.
The seen effect is that farmers are allotted mandis and their transactions can be controlled by the state. The unseen effect is that farmers are robbed of income, because they are denied a global market for their goods, and consumers and retailers are denied the choice of where they buy their vegetables. Second-stage unseen effects include the non-development of warehousing and cold storage systems that are integrated with global supply chains.
The Prime Minister recommended that all chief ministers suspend the provisions of their respective APMC statutes for three months, allowing farmers to sell their harvest from multiple locations and directly to any buyer. Congregating at mandis hampers the country’s social distancing policy. The suspension of APMC rules will allow farmers to sell directly to consumers, via apps or otherwise, at their doorstep. This would keep supply chains running through multiple channels, reduce the impact of a covid outbreak in a mandi, and minimize closures of essential food markets. That the mandi robs consumers of their choice, and robs farmers of a larger market that can directly reach consumers, is now visible. Once again, there are many more regulatory demons to slay to unshackle farmers, but a good start would be to never go back to the APMC mandi system because it denies choice access to food in a country where consumers and farmers are so often at the edge of starvation.
The Indian state is finally seeing the unseen costs of its regulations, and how it can literally cost India lives. One hopes this ability to see the unseen is not lost once we overcome the covid-19 pandemic.
Shruti Rajagopalan is a senior research fellow with the Mercatus Center at George Mason University, US