Prime Minister Narendra Modi is preparing for the upcoming Lok sabha polls 2019 but according to the experts, his decision of increasing import duties on foreign products will hurt Foreign Direct Investment. United States President Donald Trump issued a statement saying that he did not expect India to have such protectionist policy and warned that rise in import duties on the Harley-Davidson motorcycles will not be good for future trade. He said that if India continues to do so, he will be forced to increase import tariff on thousands of India made motorcycles in the US.
This was an unexpected turn as only less than a month ago Prime Minister in a statement at the World Economic Forum summit said that India welcomed Foreign investment with open hands. India has raised import duties to its highest since the 90’s. This is believed to be a result of setting the stage for a global trade war.
India is one of the fastest growing economies in the world but to achieve growth in double digits, foreign investment is necessary. The global wave of protectionism will not be good for the economic growth of India. Prime Minister Modi is preparing for the upcoming elections and he has increased the import tariff making things like televisions, cameras, automobile parts and smartphones making them more expensive. This decision will also affect India’s trade relationship with allies countries including Germany, United States, and France as well as rivals like China.
An Indian policy expert from the Washington-based Centre for Strategic and International studies has said that India has taken a dramatic turn with its decision to raise the tariff on imports and this is a protectionist policy. He wrote in a note that this section will most likely lead to strong responses from other countries including United States, Germany, France, China and other major partners. Donald Trump following his “America First” policy had raised the Harley-Davidson issue in Congress in last year March also.
Mr. Donald Trump had said during a meeting with the members of Congress on Tuesday that decision of Indian government to reduce import tariff from 75% to 50% was not enough and it has to be reduced all the way to zero. He was discussing the impact of India’s policy change on the steel and motorcycle industry. He said that the United States did not impose any tariff on motorcycles from India and he expects India to also do so for maintaining a healthy trade relationship.
India had reduced the import tariff on high-end motorcycles last march. The recent budget which was put on the table by central government on 12th February reduced the tariff on motorcycles while raising duties on many other articles. Donald Trump had indicated that his Indian counterpart had told him about the decision before it was announced.
US president said that he will approach tit for tat policy against India while German Ambassador to India, Martin Ney said that the raising duty on automobile parts was a bad decision for the relationship between two countries. The Commerce Department of US said that the imported pipes from India and some other countries were up for the examination.
In the 2018 Budget speech by finance minister Arun Jaitley, it was announced that the flagship program of his government “Make in India” was aiming to encourage the manufacturing at the local level. According to some experts, the increase in financial pressure on the Treasury due to the Goods and Services tax and demonetization has forced the government to adopt protectionism. Vanja Sarna said that the barriers to the Foreign investment will be up for almost two to three years to help the small and medium companies in India to grow to their maximum potential.
