India’s import duties are too high and must come down, feels Dr V Anantha Nageswaran, Chief Economic Adviser to the Government of India.
Describing high import duties as a “challenge”, Nageswaran said that tariffs must come down to keep the cost of imported input materials down; only then would India be able to become a major exporting nation.
He was speaking on the Union Budget 2024-25, at a meeting organized by the Governor of Tamil Nadu, R N Ravi.
Giving some data, the Chief Economic Adviser said that the average applied tariff for all merchandise products was (in 2021) 8.3 per cent, compared with 13.6 per cent in South Korea, 11.5 per cent in Thailand, 9.6 per cent in Vietnam, 7.5 per cent in China and going all the way down to 3.4 per cent in the US. Likewise, the average applied tariff for non-agricultural products was 14.9 per cent in India, compared with 8.4 per cent in Vietnam, 7.1 per cent in Thailand and 3.1 per cent in the US.
“In the absence of domestic capacity, the cost of production increased due to tariffs on inputs in the supply chain, raising the total bill of materials,” he said.
By way of an example, Nageswaran noted that although iPhones were produced in India, they cost more in India than in other countries. The price of iPhone 16, as of September 11, was ₹79,900 in India, higher than the US, UK, Dubai, China, Vietnam, Thailand and Canada.
Cognizant of this, the Budget for 2024-25 had brought down tariffs on many key components, he said.
Starting his lecture on why it is tougher for India to become a developed country than for China, Nageswaran noted that when China grew in the last three decades, it had a growing global economy and did not have to contend with global geopolitical tensions. Nor did China have to concern itself much with climate change, but India would have to now. Also, India has to face competition from China, whereas China did not have such a competitor, he said.
Given that the external atmosphere is not so conducing, India will have to look at the domestic market for growth, he said, dilating on points such as agricultural productivity, manufacturing, employment and skilling, infrastructure and energy.
Stressing that India’s economic parameters, such as GDP growth rates, inflation, steady private consumption and public investments resulting in gross capital formation, were good and signaled stability, he said that fiscal expenditures had got oriented towards investments. In 2019, revenue deficit accounted for 70 per cent of the fiscal deficit and capital expenditure another 43 per cent. In 2024, revenue deficit and capital expenditure were balanced at 46.3 per cent and 47.6 per cent respectively of the fiscal deficit.
Nageswaran dwelt substantially on MSMEs and noted that while India had many micro-enterprises and large companies, the ‘small and medium’ part of MSMEs was still a “missing middle”. Noting that only 491 MSMEs were listed on the stock exchanges, he said only 6.9 per cent of MSMEs had paid up capital of more than ₹1 crore; just 7,062 had paid up equity more than ₹25 crore. He then mentioned some of the measures announced in the Budget to help MSMEs – such as tweaking the regulations so that more MSMEs could benefit from the bill discounting (TReDS) platform and raising the limit for Mudra loans for MSMEs with good repayment record.
Earlier, welcoming the gathering, Tamil Nadu Governor R N Ravi said that in the six decades after Independence, India had “lost innumerable opportunities” because it “chose a direction which took us downwards”. He observed that there was policy consistency in the last ten years.