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India tariff hikes target mainly China in protectionist drive

Duties on solar panels and electronics go up while raw materials see decrease

India's recently hiked tariffs on about 30 products, including components for solar cells.   © Reuters

NEW DELHI -- The Indian government has raised tariffs on a laundry list of goods in a move that seeks to rebalance trade with China and develop local industry.

The protectionist moves were announced this month and come as Prime Minister Narendra Modi seeks to boost the economy after it took a major pandemic-related hit and as tensions between New Delhi and Beijing continue to mount.

The changes hike import duties on roughly 30 products at the beginning of the month. The levies on solar lamps and cells are now between 15 and 20% from a previous 5%. Cellphone charging devices, which were tariff free, were slapped with a 10% levy.

The affected products span the electronics, automotive, chemicals, leather and agricultural sectors. The intent is to minimize the imports of these goods from China and other countries and to encourage local manufacturing activity, said Devendra Pant, of India Ratings & Research.

In May, India said it planned to create an economic zone within its borders in response to the coronavirus. The country imported about $480 billion worth of goods in 2019, with China being the largest trading partner at 14%. But the pandemic disrupted imports of finished products and components, which contributed to India's economic stagnation.

To break out of the malaise and foster a local supply chain, India has turned to higher tariffs. Printed circuit boards and cameras for cellphones saw duties raised to 2.5% from zero. Duties on compressors for refrigerators and air conditioners have been hiked to 15% from 12.5%. For automobiles, ignition and signaling equipment will have levies raised to 15% from between 7.5 and 10%.

At the same time, India has lowered tariffs on raw material to lower costs for local manufacturers. Scrap iron is now duty free, down from 2%. The levy on naphtha, the basic ingredient of several petrochemical products, is down to 2.5% from 4%.

India cut duties on gold, silver and platinum as well. The country imports raw gemstones and ores to process into jewelry for export.

The tariff changes come as India and China have been involved in a border standoff in the Himalayas since May. In June, the two armies clashed in the first deadly skirmish in 45 years.

The standoff has been mainly staged in the Ladakh region in northern India. Last month, a skirmish occurred in the northeastern state of Sikkim.

India looks to resist China by reviving domestic production in the defense sector. Tariffs on components used in jet engines and similar machinery have been reduced to zero from 2.5%.

The Indian government has indicated it will grant subsidies to companies that boost revenues and is targeting 13 industries, including telecommunications and automobiles. New Delhi has distanced itself from multilateral trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the recently inked Regional Comprehensive Economic Partnership.

These moves suggest that India is starting to lean toward an isolationist policy. The country previously raised tariffs on smartphones, which drew a complaint filed with the World Trade Organization.

Some observers have raised questions over India's industrial revitalization policy.

One source at an electronics store in New Delhi said that Haier, the Chinese appliance maker, has improved its brand image in India through efforts that spanned more than a decade. On the other hand, Indian companies will be at a disadvantage in competing with Chinese enterprises because they do not have the resources to engage in massive initial investments or after-sales service, the source added.

Amid the pandemic, India's economy shrank by 23.9% in the April-June quarter, the biggest slump among major economies that period. The government forecasts a full-year contraction of 7.7% for fiscal year 2020, the worst on record. A rebound of 11% is projected for the next fiscal year, but that will depend on whether the local manufacturing sector takes off.

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