Higher import duties limiting export growth: Arvind Panagariya

Former NITI Aayog vice-Chairman Arvind Panagariya

Higher tariffs on imports, especially from China end up hurting Indian exports, ex-NITI Aayog vice-Chairman Arvind Panagariya has said.

Speaking at a lecture organised by the Columbia University’s School of International and Public Affairs in New Delhi on July 20, Panagariya said the government's plans of import substitution can't happen in a bubble. He said that studies have shown that import duties have been raised on as many as 3,000 tariff lines in recent years.

"We have since 1991 committed to liberalisation (of trade flows). In the last 3-4 years, that has been reversed," he stressed. While India's trade policy needs to recognise the current geopolitical compulsions, putting a higher tariffs on Chinese goods is not the way to do it, he said.

"It has been proven that putting and across the board import duty of 10 percent results in an equal 10 percent across the board tax on exports," he said. Panagariya was referring to the issue of Indian manufacturers facing higher costs for input goods, which are subsequently used to produce exports.

Since 2019, India has raised import duties on a wide range of products. Earlier this year, it placed export restrictions on wheat shipments to protect domestic stocks. Last month, India raised the import duty on gold to 15 percent from 10.75 percent while also placing export duties on certain finished steel products.

FTA push

However, he lauded the government's focus on signing free trade agreements (FTA) with major trade partners such as the United Arab Emirates and Australia. "I believe the FTA with the UK will be completed by August while the one with the EU will take more time, probably one more year," he said.

India has set a Diwali deadline for the ongoing negotiations with the UK to end.

On India pulling out of the Regional Comprehensive Economic Partnership (RCEP) deal, Panagariya said he was initially disappointed but the aggression by China at the Galwan valley changed his mind.

The RCEP is the largest trade bloc trade deal agreed to between 15 nations of the Association of Southeast Asian Nations group (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and five nations with which the grouping currently has free trade agreements (FTAs)—Australia, China, Japan, South Korea, and New Zealand.

As the talks reached the final stage, the government had been vocal in drumming up public support in favour of joining the deal. However, in a sudden turn of events, India decided to unilaterally exit in November 2019. The government said the deal did not benefit India the way it stood.