Concerns with Protectionism

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What is the issue?
  • Countries, including India, are on a mode to resort to protectionist tariff policies.
  • But the larger implications of the trend demand a deeper understanding of the outcomes of such trade relations.
What was the policy shortfall?
  • An acknowledged policy mistake in the initial decades of independence is protectionism.
  • Protection of domestic industries was aimed to be achieved with high import tariffs.
  • However, it fell short of providing a fillip to either industrial growth or domestic employment or consumption.
  • Also, these policies resulted in India lagging behind its Asian counterparts.
  • For the past three decades, the trade-led growth of China has been noticeable.
  • Failure to adopt such policies partly explains how India missed the growth prospects.
What is the current scenario?
  • There is a rising tide of protectionism across the world, with possibilities of even a trade war.
  • Protectionism is now getting to be a major threat facing the world, especially for emerging economies.
  • India too had raised import duties on close to 50 items recently.
  • It has also raised import duties on as many as 328 textile products by up to 20%.
  • India had also announced higher safeguard duties on solar cells imported from China and Malaysia.
  • It is considering raising import duties on certain items that are imported from the US, as retaliation.
  • The government is also learned to have set up a panel to examine import duty hikes on consumer goods such as televisions, refrigerators and washing machines.
What are the implications?
  • The measures are indicative of a slide in the Indian government’s support for globalisation and free trade.
  • Protectionist steps are justified on the ground that they would help domestic companies grow into viable competitors.
  • But the fact is that protectionism does not benefit the domestic economy.
  • It rather encourages inefficiency of domestic manufacturers.
  • It is likely to hurt exports, make domestic goods costlier and reduce benefits to consumers from increased competition.
  • So in the long term, protectionism is likely to have only a negative effect on industry’s ability to compete globally.


Source: xaam.in

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