January 26, 1954
Problems of the, Private Sector of Industry—
Protection Through Tariff and Restriction on Imports
After all some day a move will have to be made towards free multi-lateral convertibility of currencies and our solemn pledge to the GATT is not to use import quota for purposes of protection.
The private sector of industry has many problems. That protection through tariffs does not help,
is only one of them, but not an unimportant one, became consumer resistance cannot be overcome in all
cases by price differential nor are import restrictions dependable supports.
O
N behalf of Government more
than once it has been stated
by high authority that quantitative
restriction of imports is not a desirable form of protection and industries seeking projection, should look
to customs tariffs as the normal
means of protection from foreign
competition. It implies that in
Government circles quantitative res
trictions are considered as a noncomfonnable' type of interference,
while tariffs, even high tariffs. are
'conformable' interferences which
do not destroy the price mechanism
in the functioning of which a pri
vate
enterprise
economy
must
depend. To what extent is this
trend of thought compatible with
our present ideas of mixed economy
and planned economic development?
No one in the Commerce Ministry
nor in the Planning Commission
seems to have examined this question. Or it may be that Governnient do not want to flout international obligations solemnly agreed
to, so long as balance of payments
considerations are conveniently handy
to clap import restrictions whenever necessary. I t will be interesting
to examine the role of tariffs as a
means of protection in our postwar economy.
The Indian Customs Tariffs are
divided into two classes, revenue and
protective, besides there are standard
and preferential rates of duties
wherever the latter have been agreed
to under the Indo-British Trade
Agreement of 1939. Revenue duties
arc levied purely on considerations
of revenue and are subject to review
every year, while proactive duties
are levied for a specific period of
time so as to ensure that the duty
required to cover the difference between domestic cost and cif of the
imported article is maintained during the period of protection. The
assumption is that at the end of
the period the domestic industry will
be in a position to compete with
imported article on equal footing,
without this duty. The protective
duties are levied on the recommendation of the Tariff Commission
which conducts detailed investigations into the various aspects of the
industry which seeks protection.
To what extent the duties thus
recommended by the Commission
have helped the industries concerned to withstand foreign competition, we shall examine below.
Since 1945, when the first postwar Tariff Board was constituted,
there were about eighty references
to the Tariff Board or to the Commission for protection or assistance.
Of these, 27 cases could not establish their claim to protection. And
in another 36 cases, the Board or
the Commission found that
the
then prevailing revenue duty was
sufficient to protect the domestic
industry. In other words, in about
75 per cent of the cases according
to the Tariff Commission's formula
there was no case for the enhancement of the revenue duty The
question, then, is why so main
industries went to the Commission
for protection? Again, by convert
ing the prevailing revenue duty into
projective duty at the same rate,
did the industry in question ect
adequate protection? It is difficult
to answer these questions as there
was no chance to test the adequacy
of the duties recommended by the
Commission, as imports of the protected articles were generally regulated after giving due consideration
to domestic production. In this
connection, the Commission has
made the significant observation in
its annual report that " several protected industries represented to the
Commission that liberalisation of
import policy had reduced or nullified the effective protection enjoyed
by t h e m " . Does it not then follow that if the projective duties
recommended by the Commission
are not adequate to give protection
to the industries concerned, cither
the method of determining the
quantum of protection by the
Tariff Commission is wrong or
tariffs, as means of projection, are
inadequate in the prevailing circumstances?
We have seen in an earlier paragraph that the Commission determines the quantum of protection
required to protect an industry by
equating the domestic cost with
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cif of similar imported article. By
this, the Commission tries to bridge
the gap between the domestic and
imported costs so as to give the
domestic industry an equal chance
to compete with imports.
This
would have helped the domestic
industry, if price alone is the factor
that enters into competition. In
this connection, the Commission's
observation in its annual report that
" protected industries continued to
complain of consumers prejudice
and to advance tin's as a plea for
continuance of a measure of protection " is significant. The Commission docs not seem to have exa
mined the root causes of this prejudice to suggest effective remedies.
The present practice of giving an
allowance of 1 5 per cent over cost
to overcome prejudice mere recognises the fact, nothing beyond that.
Another factor to which the Commisson has not devoted sufficient
attention is that in most cases the
foreign manufacturer has accumulated experience of years in selling his
products, which his Indian counterpart lamentably lacks. Equally important is the fact that it w i l l take
time for the domestic industry to
catch up with the scientific advancements in industrially developed
countries.
loose brought up in the classical
tradition of economic thinking may
argue that these are factors which
should be taken care of by every
good entrepreneur and if factors like
these are taken into consideration in
determining the quantum of protection, the clement of risk natural in
private enterprise will not be there
and the burden on the consumer
will' increase without compensating
advantages. But if we are to take a
realistic view of things as they exist
today, the quantum of protection as
being determined now will not help
the industrial expansion of the
country with the speed one should
like to have. If it is really the
intention of Government to do away
with import control at the earliest,
it is high time to do a little rethinking on the present method of
tariff making for the protection of
domestic industry.
January 26, 1954
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