High tariffs and licensing do not help development—they hurt it
India has a long tradition of protectionism, but in the 1990s and 2000s it opened up. It slashed its average tariff from over 80% in 1990 to about 13% in 2008. Then in 2014 the prime minister, Narendra Modi, came to power and launched the “Make in India” campaign. Tariffs began to rise. Today they average about 18%, well above those of peers like Indonesia and Thailand.
India’s government is convinced that reducing imports is necessary for its security and creating manufacturing jobs, and especially hopes to. Like America, it views China with suspicion, given its border disputes with the country. But it also envies China’s decades-long high economic growth, which many Indian policymakers think was achieved with state-led mercantilism.
Yet India’s strategy is not working. In 2022 value added in manufacturing accounted for 13.3% of India’s, down from 15.6% in 2015 and the lowest since 1967; a scheme to produce mobile phones locally seems mainly to have attracted low-value assembly work. In part this is because India is drawing the wrong lessons from China, which developed rapidly by becoming integrated in manufacturers’ global supply chains—a process that tariffs inhibit.
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