India Budget Proposes Tariff Increases, Draws Scrutiny from Partners

1 March 2018

Over the past few weeks, Indian Prime Minister Narendra Modi’s government has proposed increased tariff rates on several imports entering the South Asian country, drawing scrutiny from some of its major partners. 

The proposed tariff hikes were announced by finance minister Arun Jaitley in February when presenting the 2018-2019 Union Budget. The measures build on an earlier series of import duty hikes late last year, expanding its coverage to over 30 other goods. 

“In this budget, I am making a calibrated departure from the underlying policy in the last two decades, wherein the trend largely was to reduce the customs duty. There is substantial potential for domestic value addition in certain sectors, like food processing, electronics, auto components, footwear, and furniture,” said Jaitley in explaining the planned tariff hikes. 

Among the items targeted for tariff increases are mobile phones and parts and television components, to levels of either 15 or 20 percent depending on the good. 

The finance official noted that this proposal was part of the government’s “Make in India” initiative, a Modi priority since taking office in 2014. Other such initiatives include Digital India and Start Up India, both of which were also cited as policy priorities in the budget. These initiatives focus on measures to incentivize multinationals and domestic companies to produce their goods in India; to foster a robust transition to a knowledge economy; and to support “start up” initiatives, respectively. 

The move to increase tariffs has been touted as part of the current government’s strategy to boost GDP and exports, along with creating more domestic jobs. Analysts have noted that some of the exports affected come from China, a major trading partner for India. 

Modi announced at the World Economic Forum in Davos, Switzerland, earlier this year that he aims to increase his economy’s size massively, hitting US$5 trillion in GDP by 2025. Indian officials have said publicly they also aim to increase the export share of GDP significantly over the coming years. 

Trading partners examine tariff increases

The news of the proposed duty hikes has drawn scrutiny from industry groups abroad, as well as officials from major trading partners. Ford, Apple, Harley Davidson executives have been among those questioning the move, according to statements reported by Reuters. 

Other tariff increases implemented prior to the new budget have also prompted questions from some Indian trading partners. At a meeting of the WTO’s Committee on agriculture last week, Australia, Canada, the EU, Russia, the US, and Ukraine flagged India’s move from late last year to increase tariffs on pulses, such as lentils and chickpeas, according to a Geneva trade official. 

For example, these countries noted that the change was imposed with immediate effect, though Indian said that the tariff increases did not go above the ceilings it has agreed to respect at the WTO and was meant to respond to consumer and producer needs.

Focus on agriculture, technology and manufacturing

The budget also tackles a range of other policy priorities, including on agriculture. Jaitley, reinforced that the measures proposed will “direct the benefits of structural changes and good growth to reach farmers, poor and other vulnerable sections of our society and to uplift the under-developed regions.” 

According to the document, “India’s agri-exports potential is as high as US$100 billion against current exports of US$30 billion.” The document suggests that India will move to liberalise agricultural exports further, among other measures, and devotes an entire section to various facets of agriculture and the rural economy. 

Another section deals with micro, small and medium-sized enterprises (MSMEs), with Modi’s government proposing new means of credit support and capital, especially to those operating in labour-intensive sectors. The government also expanded its comprehensive textile sector package to boost the apparel and made-up segments in 2018-19. 

In addition, the budget doubles investment in the Digital India programme and outlines plans for increased investments in artificial intelligence, innovative ecosystems, digital manufacturing, big data analysis, and quantum communication. 

ICTSD reporting; “Narendra Modi’s rise in import tariffs will hurt India’s economy,” FINANCIAL TIMES, 19 February 2018; “In Free Trade U-Turn, Modi Raises India’s Import Duties,” BLOOMBERG, 15 February 2018; “Suresh Prabhu says 40 pct of GDP to come from exports by 2025,” PTI, 19 February 2018; “Exclusive: U.S. tells India to cut tariffs as trade friction heats up,” REUTERS, 23 February 2018.

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