MSME protectionism : Government hikes 20% import duty on 328 textile goods

The government announced a 20% hike in import duties on about 328 textile goods on Tuesday. Knotted carpets, men’s and boy’s jackets, trousers, ensembles of silk, artificial fibre, garments for babies, women’s lingerie, bathrobes, men’s underwear are bound to experience cost hikes. Minister of State for Finance Pon Radhakrishnan sent a notification in the Lok Sabha.

The notification said it seeks to ‘increase customs duty on 328 tariff lines of textile products from the existing rate of 10 percent to 20 percent under Section 159 of the Customs Act, 1962’

The textile industry is a labor intensive job. This is proposed to create an estimated 10.5 cr jobs and also indented to boost the demand of raw materials. This move is a bid to flood the domestic markets with MSME goods.

Impact on Importers

Textile imports to India were at 16% ($ 7 billion) in the fiscal year to March 2018. About $ 3 billion imports were from China pushing India’s trade deficits to $ 1.54 billion in 2017-18.

However, duty hikes will not affect textile imports from Bangladesh, Vietnam and Cambodia since they are under the free trade agreement (FTA). According to trade experts, duty hikes will not have an impact on China as it is still at a trade surplus with India.

Protectionism theory – failed benefits

With trade protectionism customers are left limited choices, infant industries seldom grow and sometimes this leads to inflation too, argues Arthur Guarino, assistant professor in the Finance and Economics Department at Rutgers University Business School. 

‘Protectionist measures protect industries. I think that’s terrible. What we suggest is protecting the individual. The best form of the safety net is improving your human capital, your skills, retraining, providing health insurance and so on. There might be some industries where people really don’t have hope and there is no way you can retrain them for anything except jobs at McDonalds. If so, there might be a case for a monetary safety net’, Raghuram Rajan, former RBI Governor, in an interview to Rediff.com when questioned about protectionism.

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