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The Rediff Business Special:Is India' tariff structure hurting or helping industry

'I don't want India to be like Pakistan or Bangladesh'

On April 5, Rediff On The NeT presented the transcript of the popular television debate programme, 'Crossfire'. Today, we present the second in the series: a debate on "India tariff structure: Is it hurting or helping industry?" featuring Bajaj Auto chairman and managing director Rahul Bajaj and economist Isher Judge Ahluwalia. The moderator is the well-known commentator Sanjaya Baru.

Sanjaya Baru: Welcome to Crossfire. The subject this evening 'India's tariff structure: Is it helping Indian Industry or hurting it?' Should the government be increasing tariffs or reducing them? Is the fiscal deficit so high that the government has no other option but to be increasing tariffs or should the government of India in fact be exposing Indian industry to greater competition from outside?

To discuss these issues we have in the studio this evening Rahul Bajaj, CMD of Bajaj Auto Ltd, and Prof Isher Ahluwalia of the Centre for Policy Research and soon-to-be director of the Indian Council for Research in International Economic Relations.

Mr Bajaj, you have been quoted as saying that the national interest is not necessarily the consumer interest. Or that there is something called the interest of industry which is different from the interest of the consumer and that the government should look after industry's interest even if it's at the expense of consumer interest. Is that policy today going to push you into demanding higher tariffs for Indian industry?

Rahul Bajaj: No, the higher tariffs has nothing to do with that philosophy. You quoted the first part correctly, national and consumer interests are the same. But I didn't say anything about industry interest which is another special interest group. Consumers for a particular product are also a special interest group, although larger in number. If consumer interest is synonymous with national interest then you should import everything under the sun at zero per cent duty. Keeping in mind the need to industrialise India, to generate employment in India, to absorb technology in India, we should not just import and assemble. There must be local manufacturing -- Made in India -- of good quality, low cost goods.

SB: And for that you should not push tariffs further down?

RB: No, I didn't say that. For that there must be a 3-tiered structure of import duty for raw materials, intermediates, and finished products.

SB: Dr Ahluwalia?

Isher Ahluwalia: But may I then say, Rahul, that we should abolish all forms of quantitative restrictions on imports of goods. If abolition of QR is good for all capital goods and intermediate goods, why is it not good for consumer goods?

What is happening now is that you are importing your capital goods easily, freely, at a competitive price and you are using screwdriver technology to give us shoddy consumer products. As a consumer I ask you: If I can get that product cheaper, and if I can put pressure on you to improve your quality, and cover your cost, then why shouldn't I have access to consumer goods also?

RB: Isher, you have raised many points here. Consumer interest is indeed very important for a company. If I don't look after consumer interest I will be wiped out. I think QR's on consumer goods should also go. Under the WTO, whether you like it or not, you will have no option but to remove them by year 2003. Control everything that you will need to control through tariffs. Having said that, you have said something which I don't agree with in principle. Raw materials, intermediates, and capital goods are needed to industrialise India, to provide employment in India, to absorb technology in India and to make Indian industry competitive. Consumer goods are not.

IA: No, I don't agree because ultimately what is the use of machinery unless it is used to create something better for you and me? Why should we have white elephants which produce machinery which don't produce better products for us?

SB: Rahul, you made world class scooters when faced with competition. Competition is essentially what drives you, doesn't it?

RB: The fact that competition drives a company, I haven't heard anybody disagreeing with that...

SB: ...but increasing tariffs reduces competition?

RB: Increasing tariffs reduces competition. So reduce tariff, make it zero per cent import duty! Has anybody ever done it? What do you have to say that, Isher?

IA: No, I have an answer to that. You know we started this process in 1985 and there was a clear signal given to Indian industry that you must become globally competitive. Today, there are Indian companies that have become globally competitive, that is Indian MNCs -- whether it is the TVS group, Ranbaxy, Dr Reddy or Infosys. My point is that I believe Indian industry has the strength and resilience to take on the competition.

SB: Given the existing tariff which incidentally in India happens to be higher than global rates, though they are below…

RB: But they are below WTO rates. We are trying to be good boys in the eyes of people who don't matter!

IA: I don't think we have done this to be good boys in the eyes of anybody!

SB: Let me ask you, Isher, should we be moving towards lowering the tariff rates at this point in time? What should we expect in the coming budget? Or, should we be increasing the average tariff rates?

IA: Increasing tariffs is out of the question. It is economically irrational. And if for some reason due to economic recession we want to say that we are not in a position to reduce tariffs, perhaps there is a case that can be made for that.

RB: I would put it this way. On an average, individual cases can be made. But the question of reducing import duties this year doesn’t arise, and will not and should not take place. Increase should take place in areas where there are existing anomalies, like, steel which has 30 per cent import duty. Otherwise it will be unfair.

Let me give another example: Why were decisions taken to have zero per cent import duty for refineries, fertilisers and machine goods? Why not for scooters?

SB: Should we move away from the concept of zero duty? I mean, there are many many goods with a zero duty…

RB: In such cases I think tariffs should increase.

IA: No, I disagree. I think you have to go by international comparisons along these lines. You have to look at what other countries are doing…

RB: Nobody is doing this!

IA: What I can tell you is that average tariffs in Sri Lanka and Bangladesh are much, much lower.

RB: Isher, you haven't answered my question. Why should we have zero per cent duty on any product?

IA: It is Indian industry which gains most from these things.

RB: Every industry is as important as the other!

IA: But the point is that a case can be made for specific section, where you want to push development and you want to be cost effective...

RB: Isher, a case can be made for all sections!

SB: Mr Bajaj, a little while ago, Isher was saying that India's neighbouring countries Bangladesh, Sri Lanka and Pakistan have brought their tariff rates below India's. For SAFTA -- South Asian Free Trade Arrangement -- to be successful India has to have more business with her neighbours. But there is Sri Lanka telling us reduce our tariff rates.

RB: There are 2-3 separate issues you have raised here. Isher quotes Bangladesh, Pakistan -- God knows what, but I don't want to be like them! With all due respect, I respect them as countries but they are hardly good role models. I have better role models to follow.

SB: Isher, coming back to tariffs in India. Do you see an increase in tariffs as a measure of revenue mobilisation? After all this, year the fiscal deficit has gone up to 6.1 per cent, and there is pressure on government resources. Income tax collection has come down. Do you see that kind of pressure developing in the government that you raise customs duties in order to mobilise revenues?

IA: I think it will be very unfortunate if they do that. All this has cropped up because there has been a lot of talk of swadeshi. Swadeshi has been interpreted differently by different people. To me swadeshi means being self-reliant, it means having industry which is globally competitive, that which will enable you to buy the best in the world. If that is not the definition, then it will be a pity because then you will be hurting the cause of a strong India.

RB: But today 80 per cent of funds come through customs and excise. You can't do away with that. I am all for widening the income tax net but I am against raising income tax corporate tax rates.

SB: You are also against raising excise duties?

RB: Exactly. Generally what Isher said everybody agrees. But between excise and customs if you have to collect 80 per cent, then you should lower excise. Let me exaggerate: raise excise and hurt Indian industry, but reduce import duties that benefit foreign industries! Is this what we want? It should be the reverse -- reduce excise duties and raise customs duties! Isher be Indian, India will be made by Indians!

IA: You Bombay Clubwallahs are misleading the public into saying that if you raise tariff it is the foreigner that pays! What I am going to tell you is that if you raise the tariff and you cut out the import, you are allowing people like you, to charge me double what we would otherwise be charged! Ultimately it is I, as an Indian consumer, who has to pay.

SB: That's some crossfire! Thank you very much for being on Crossfire. See you next week

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Kind Courtesy: IN TV

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