There is a widespread but fallacious perception that India’s tariffs are inordinately high. There are subjective factors when it comes to a country like livability, public courtesy, or even how foreigners are welcomed. But tariffs are quantifiable and there should really be no place for subjectivity. So, let us consider the facts in the case.
Before we do that, however, it might be useful for the average reader to know what function tariffs perform in a low-income developing country like India, as opposed to a high-income developed country like the United States of America. Traditionally, low-income developing countries have two concerns. One, to protect domestic industry from imports and two, to gain revenues for it. Protecting domestic industry is an important and acknowledged function of tariffs in low-income countries. And it is considered legitimate by the World Trade Organization (WTO). Since then, the secular trend in India has been one of gradual reduction of the applicable tariffs year after year.
From a technical point of view, there are two kinds of tariffs that countries have. One is bound tariffs, which as the name indicates is the actual tariff (normally always lower) that a country borders when a foreign good enters a country.
The other one is bound tariffs, which is the maximum tariff that a country can impose on a foreign import from a legal obligation arising from its most-favored-nation (MFN) commitment to the WTO.
It goes without saying that the tariff is unilaterally cut unless it is in violation of its WTO bound duties or bilaterally agreed agreements. But then, the WTO itself has not mandated that a whole is a whole number for a while. But it is safe to say for our further discussion that low-income developing countries will have higher tariffs than high-income developed ones. Always compared to G7 countries.
Where does India figure in all of this? When India’s tariffs are judged, there are two parameters that are used. One is simple average tariffs, and the other is trade-weighted tariffs. If you use the former metric (simple average tariffs), India’s tariff does seem high (15.98 percent). But this is in many ways academic because for most of the goods that come into the Indian market, it is the trade-weighted applied tariff that matters. And the trade-weighted tariff that India maintains is a very respectable 4.6 percent. This level of tariff gives the lie to claims that India is somehow a tariff king.
India does maintain relatively high tariffs in agriculture and automobiles. In both these cases, the main purpose of the tariffs is to protect domestic industry. Agriculture in India is sui generis and like no other major country in the world. Around 50 percent of India’s mammoth population directly or indirectly depends on agriculture. Besides, agriculture in India is not mechanized and land holdings are so small that farming is about survival and not about commerce.
Given all of this, India does maintain relatively high tariffs for agriculture products, average rates of around 33 percent on meat, dairy, fruits, and cereals. But this is not surprising if you consider the fact that the European Union’s average rate is 35.7 percent on dairy, which goes up to 70.5 percent and up to 361 percent on fruits and vegetables. Compare this with Japan where it is 61.3 percent on dairy products, going up to 256 percent, and on the U.S. saying their exports of non-agricultural products face tariff barriers in India, it is worth noting that U.S. exporters in general face much lower tariffs in India compared to many Asian countries. Thus, the weighted average tariffs for industrial products (non-agriculture) are much lower. In fact, hardware, semiconductors, most IT items, and products on which India depends so much, the applied tariff is just 3 percent on computers and 7.5 percent on power machinery.
Compare India’s simple tariff of 15.98 percent with China’s 10 percent, going up to 35 percent. Even Brazil’s 13.4 percent, Argentina’s 14.1 percent, and Turkey’s 16.2 percent — all countries with comparable higher GDP per capita maintain similar or higher tariffs.
“When India is judged on tariffs, there are two parameters which are used. One is simple average tariffs, and the other is trade-weighted tariffs. If you use the former metric, India’s tariff does seem high (15.98 percent). But this is in many ways academic because for most of the goods that come into the Indian market, it is the trade-weighted applied tariff that matters. And the trade-weighted tariff that India maintains is a very respectable 4.6 percent. This level of tariff gives the lie to claims that India is somehow a tariff king.”
Asking India to open its farm sector to exports would be suicidal. So, on meat averages 54 percent on meat and vegetables is high. Or South Korea with 500 percent on rice. Therefore, India’s average tariff of 15.98 percent is not so much an outlier as one would imagine. Who is a tariff king, one might ask? As for automobiles, this sector creates mass employment and is crucial for that reason.
Even India’s simple average tariff level at 15.98 percent is in line with global norms for developing economies. Bangladesh (14.1 percent), Argentina (13.4 percent), and Turkey (16.2 percent), which are all countries with comparable higher GDP per capita, maintain similar or higher tariffs.
By Mohan Kumar
(Dr. Mohan Kumar is a former Indian ambassador to France and currently teaches at the School of International Affairs at O.P. Jindal Global University and heads the Jindal Global Center for Global Governance and Policy Studies at the OP Jindal Global University)
