According to Panagariya, the argument that protection would help the MSMEs needs to be carefully scrutinised.
Former Vice Chairman of the NITI Aayog, Arvind Panagariya, in an article for The Economic Times, has sounded alarm over the government's new trade template for India following the 2018-19 Union Budget.
Panagariya said that the increase in duties on a number of products, ranging from kites and footwear to cellular mobile phones and vehicles in the recent Budget has ended his optimism.
The former NITI Aayog vice chairman further quoted revenue secretary Hasmukh Adhia as having said that the duties have been levied, not to raise revenue, but to provide protection to micro, small and medium enterprises (MSMEs).
According to Panagariya, the message coming from the revenue secretary is clear -- more tariff hikes are on the way.
Panagariya said that the argument that protection would help MSMEs needs to be carefully scrutinised.
"Did we not do nearly everything to promote our small-scale enterprises in the past? Until 2001, we had a near ban on the imports of most products produced by them. The enterprises also had the exclusive lock on the production of most of the items they produced via the small-scale industries (SSI) reservation. We followed these policies for 50 years and yet produced no notable success," he wrote, adding that "In the end, both import ban and SSI reservation were ended as a part of our reform programme."
The former vice chairman of NITI Aayog also said that "unless we work on a direct removal of these hurdles (domestic regulatory policies), we would keep hurting our own consumers through higher tariffs without preparing our entrepreneurs to challenge the competitors in the global marketplace, which, is what is ultimately needed to build the New India."
Panagariya also pointed out how the "enlightened" bureaucrats post 1991, "went on to systematically liberalise the economy" and said that the new generation of bureaucrats "seems to have now replaced its more enlightened predecessor. It is on course to erect the wall of protection all over again."
"Defenders of the revival of protection would probably argue that this time it is different, because the economic environment today is not the same as that under licence-permit raj in the 1970s and 1980s," Panagariya wrote."But haven't we heard this before? Didn't our bureaucrats tirelessly tell us prior to 1991 that the experience of Singapore, South Korea and Taiwan didn't apply to us because we are different?" he added.
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