Manufacturing vs imports

Updated: Jul 25 2013, 05:53am hrs
Given that India imported $33 billion worth of electronic goods in FY12 and around $18 billion in the first half of FY13thats around 40% of FY12 and FY13s current account deficitsthis is a soft target for the government. Indeed, a committee has been set up to examine hiking import duties on such items and its report is expected in another two weeksso its safe to expect consumers will pay more for their next iPhone or iPad. The government has already announced various measures, over the last two years in fact, to curb gold imports. The question is whether the moves will work. Given the slowing economy, chances are imports of such items will slow in the short run; and right now, thats perhaps all the government wants. But hike the duties too much and its likely the arbitrage opportunities will cause a spike in smuggling, some signs of which can already be seen in the gold market.

The larger issue, however, is that if India is keen to slow down imports of what are in a sense items which can be produced locally, this can only be done by encouraging local manufacturing. Right now, however, that is not happening, due to inflexible labour laws, poor availability of land and, critical in the case of electronics, the unavailability of reliable 24x7 electricity supplies. What makes this ironic is that, for the first time since independence, the Indian market is actually big enough for several itemscellular phones, for instancein the sense that producers can set up world-scale manufacturing facilities based on just local demand.