By Dr Mohan Kumar
There is a widespread but fallacious perception that India’s tariffs are inordinately high. Unlike subjective factors such as livability, public courtesy, or how foreigners are welcomed, tariffs are quantifiable — and should not be judged subjectively. So, let us consider the facts.
Before doing so, it may be useful for the average reader to understand the function tariffs perform in a low-income developing country like India, as opposed to a high-income developed country such as the United States. Traditionally, developing countries use tariffs for two reasons: first, to protect their domestic industry, and second, to raise government revenue. Protection of domestic industry is an accepted economic argument, particularly if the industry is still in its infancy and the country needs to build an industrial base. The revenue function is also important — illustrated, for instance, by duties on alcohol or luxury motorcycles.
India’s tariffs, which were high in the 1980s, were brought down significantly after the 1991 reforms and during the Uruguay Round negotiations that led to the establishment of the World Trade Organization (WTO). Since then, the secular trend in India has been one of gradual tariff reduction.
From a technical point of view, countries apply two kinds of tariffs. One is the applied tariff — the actual duty (normally ad valorem) imposed at the border when a foreign good enters a country. The other is the bound tariff — the maximum tariff that a country is legally allowed to impose on a foreign good under its most-favoured-nation (MFN) commitments to the WTO.
It goes without saying that the tariff war initiated by the U.S. violates its WTO commitments. But then, the WTO itself has been moribund for a while. It is also worth noting that tariffs cannot be the same for all countries. Low-income developing countries will inevitably have higher tariffs (for the reasons outlined above) compared with G7 economies.
So, where does India figure in all this? When India is judged on tariffs, two parameters are used: simple average tariffs and trade-weighted tariffs. Using the former metric, India’s tariffs do appear high (15.98 per cent). But this is somewhat academic, because for most goods entering the Indian market, it is the trade-weighted applied tariff that matters. India’s trade-weighted tariff is a very respectable 4.6 per cent — which undermines claims that India is a “tariff king.” Simple averages distort the picture, as they treat all products alike regardless of trade volumes.
Why, then, is there such a big difference between India’s simple average tariff and its trade-weighted tariff? The answer lies in agriculture and automobiles, where tariffs are relatively high. In both cases, the purpose is to protect domestic industry.
Agriculture in India is sui generis and unlike that of any other major country. Around 50 per cent of India’s massive population depends directly or indirectly on agriculture. Farming is largely unmechanised, with small landholdings — more about survival than commerce. Asking India to open its farm sector to imports would be tantamount to asking it to commit economic suicide, which no elected government would accept. This demand is especially egregious given that Western farmers benefit from extensive subsidies.
India therefore maintains relatively high tariffs on agricultural products, with average rates of around 33 per cent on meat, dairy, fruits, and cereals. But this is not unusual when compared internationally:
- The European Union averages 37.5 per cent on dairy products, with rates going up to 205 per cent on some items and 261 per cent on fruits and vegetables.
- Japan averages 61.3 per cent on dairy, with rates up to 298 per cent; cereals up to 258 per cent; and meat and vegetables up to 160 per cent.
- South Korea averages 54 per cent on agricultural goods, with tariffs of 800 per cent on some vegetables and 300 per cent on fruits.
So, who is really the tariff king in agriculture?
As for automobiles, this sector creates mass employment in India, which makes tariff protection crucial.
Even India’s simple average tariff level of 15.98 per cent is in line with global norms for developing economies. Bangladesh (14.1 per cent), Argentina (13.4 per cent), and Türkiye (16.2 per cent) — all with comparable or higher GDP per capita — maintain similar or higher tariffs.
On U.S. claims that their non-agricultural exports face tariff barriers in India, it is worth noting that American exporters often face equal or lower tariffs in India than in many Asian markets. For instance, India has a 0 per cent tariff on most IT hardware, semiconductors, computers, and associated parts, with average tariffs of 10.9 per cent on electronics and 8.3 per cent on computing machinery.
In comparison:
- Vietnam imposes 8.5 per cent on electronic equipment, rising to 35 per cent.
- China imposes 5.4 per cent, rising to 20 per cent on electronics and 25 per cent on computing machinery.
- Indonesia imposes 6.3 per cent, rising to 20 per cent on electronics and 30 per cent on computing machinery.
It is true that India maintains tariff protection for its agricultural, dairy, and automobile markets — for valid reasons. But its trade-weighted applied tariffs in other sectors do not justify it being called a “tariff king” at all.
Contributing Author: Dr Mohan Kumar, former Indian ambassador and Director-General of the newly established Jadeja Motwani Institute for American Studies at O.P. Jindal Global University.
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