India needs to focus on increasing productivity and reduce import tariff to accelerate progress towards Atmanirbhar Bharat, stated a report by State Bank of India (SBI)’s Economic Research Department.
According to the report, authored by Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, despite the reduced tariffs India has one of the highest weighted average tariffs in the world on manufactures.
“A regression of India’s imports of raw materials, intermediate goods, capital and consumer goods in the respective AHS weighted average import tariff rates for the time period 1990-2017 shows that with even 1 per cent increase in tariff the imports decline by around USD 2 billion on an average, thus possibly making a cause for improving the manufacturing base of the country, but they do not encourage improving productivity and are tantamount to taking the easy route,” the report stated.
It added that in the export basket the highest share is of consumer goods which are mostly manufactured products, followed by intermediate goods, both of which attract highest tariffs in the import basket, therefore, making a case against the fact that the higher import tariffs have not protected these industries.
“The high tariffs are clearly impacting India’s position in Global Value Chains (GVC). Countries can participate in GVCs by engaging in either backward or forward linkages. Backward linkages are created when country A uses inputs from country B for domestic production. Forward linkages are created when country A supplies inputs that are used for production in country B. Countries with a larger position index are relatively more upstream, that is, they contribute more value added to other countries exports than other countries contribute to theirs,” the report said.
It further added that upon adding the available data it can be seen that for India “the GVC participation has slowly increased over the years as the economy opened up and moved towards globalization.”
“However, the Position index has followed a downward trend as the backward linkages have been more pronounced than the forward linkage. This is perhaps prompting India to raise tariffs but it could actually boomerang on India creating a self sustaining manufacturing base. With Atmanirbhar Bharat, the government is hoping to increase the forward linkage,” it said.
A cross country comparison between top world manufacturers of Manufacturing Value Added (MVA), as per the report, shows that between 2004 and 2017 China gained around 18 per cent market share in Manufacturing GVA, while India gained 1.5 per cent, the second highest (6th largest in global manufacturing share at 3 per cent).
Other emerging markets such as Brazil, Indonesia, Turkey, Thailand have also increased their share in world manufacturing. However, the respective increase is less than 1 per cent for each country.
A look at the data for manufacturing industrial production, it is evident that the manufacturing production growth rate in India has been poor in the late 1990s and early 2000s.”Barring 3 years period of 2005-06 and 2007-08, India has never experienced double-digit manufacturing production growth. The overall share in GDP has also stayed in the 15-18 per cent range over the past several years,” it said.
An example of textile and apparel exports from India to the US, whose major imports have not changed since 2004, shows that by 2020 the US’ imports became heavily sourced from China, which had just 17 per cent share in 2004, it peaked at 36.3 per cent in 2016 and is currently at 26.9 per cent.
“Bangladesh and India have gained comparable market share of around 3-4 per cent each. But given that the Bangladeshi economy is much smaller this gain in market share translates into bigger gains for Bangladesh vis-a-vis India. Bangladesh has chosen to specialise more in certain product categories viz. in trousers/slacks/breeches/short made out of cotton and has remarkable dividends since 2015 by increasing its market share in this category by 6-7 per cent in just 5 years!” the report said.
It further advised that a focused attention to apparel and textiles sector is required if India needs to compete with Asian neighbours like Vietnam, Bangladesh and others.