The move by Finance Minister Arun Jaitley to impose customs duty on a slew of imports including electronic goods, mobile phones, processed foods, auto components and footwear has not been kindly received. Calling it the return of protectionism, Arvind Panagariya, former Niti Aayog vice-chairman, has said in a signed article that while it may provide an initial boost to struggling small and medium enterprises (SMEs), it will have a long-term debilitating effect on the economy. Protectionist policies make goods more expensive for the consumer, and indirectly slow down growth.
However, the general mantra of laissez-faire capitalism cannot be quoted out of context. The negative impact of demonetisation on SMEs is still reverberating in the form of sweeping closures and massive job loss. Small units manufacturing digital products are still in their infancy and will not survive if pushed to compete with international Goliaths. The Centre has rightly provided some protection so that lakhs of mom-and-pop shops don’t go under.
The leader of the capitalist world meanwhile has announced an ‘America First’ policy restricting imports and favouring US industries. It is ironic that US President Donald Trump is berating India for levying excessive tariffs on Harley-Davidson bike imports. If the US has jettisoned ‘free trade’, it would be foolish to allow an ‘open-door’ policy to whatever the West has to sell us without protecting our industries.
But it is unlikely a few tariff measures are going to bail out SMEs. A more comprehensive policy, with technology and credit support, is needed. The budgetary measures for small trade and industry, a traditional BJP voter base, also seem to be suspiciously calibrated for the looming Lok Sabha polls. The Centre has to have a dual approach to import barriers—industries and sectors driving growth and starved of technology need an ‘open’ policy to imports; on the other hand, non-essential, high-employment sectors have to be protected in the current ‘slow growth’ times.