Such tariff measure was well-received among the local manufacturing sector as they are now demanding for an increase in customs tax to further ensure a level playing field - from the previous 10% to 15% and eventually, 20%. The industry is also asking for a 10-year tax holiday for units setup is special economic zones, export-oriented units and domestic tariff areas for a period of up to 20 years. 

It is expected that India is able to emerge as a global manufacturing hub with continuous efforts to protect the local industry through protectionist policies such as anti-dumping duties, prevent cheap imports from entering the country

New regulations:

Severe droughts in 2015 and 2016 brought about conditions that made it impossible to grow pulses eventually causing pulse numbers to plunge while its prices skyrocketed. Indian farmers responded to the increasing price situation by increasing land area used for pulse production and good rainfall helped overall pulse production to increase by 33%. Local production coupled with high amounts of imports led to an abundant amount of pulses in India. Due to high supply, prices fell rapidly causing local farmers to reduce their prices well below the minimum support price where they did not earn much profit. In addition, farmers were banned from exporting pulses while there were no such limitations on imports (Gulati, 2017).

With the import quota in place, farmers have a chance of being able to sell their produce at higher prices as they face lesser competition from the importers. However, the profits will only stream in once India has managed to clear its excessive amounts of pulses that even government procurement does not help the situation.

The imposition of quota on pulses has caused Myanmar to run out of business. Myanmar exports about 1.5 million tons of pulses to foreign countries and India had been its largest market where it exported about 70% of its pulses to (Ko, 2018). The quota has now caused pulse prices to decrease rapidly in Myanmar.

In addition, Myanmar now has to fight with Africa as they both compete to fulfil the 200,000-ton quota for tur, as India imports from both countries. Myanmar now faces pressure as its prices have to remain competitive in comparison to Africa but also has to ensure that the bean market is still profitable overall as it was before the quota (Htwe, 2018). Overall, the problem of pulse farming being unprofitable has been transferred from Indian farmers to Myanmar farmers.

 

Even though the import quota gives a glimmer of hope to Indian pulse farmers, profits are still a distant away. The minimum support price (MSP) has been said to be unattainable unless the government bans pulse imports totally. Due to free trade, the stocked-up amounts of imported pulses are more than enough to cause pressure on domestic farmers. But as imports are still allowed, the hopes of selling pulses at MSP are reduced significantly (Bhosale, 2018). Thus, farmers are demanding that imports are banned and that India rely on domestic production solely, until it has a need to import.

 

3.4.1 Encourage exports of domestically produced pulses

As the government is unable to guarantee that farmers will be able to earn at MSP, farmers should be allowed to export their pulses as it would allow them to dispose of their products at prices higher than MSP. Thus, the government had lifted the 10-year trade ban in 2017. However, not having been engaged in exports for the past ten years, traders are still slowly establishing trade links (Government removes restrictions on export of all types of pulses , 2017). By providing support to these traders and farmers who export, India will be able to clear its pulse stocks faster and could still continue to import from other nations such as Myanmar and Africa. This would also allow them to continue to build their political ties with these nations as opposed to these nations blaming India for affecting their farmers’ livelihood.

Additional Links:
https://www.financialexpress.com/market/commodities/save-the-pulse-farmer-heres-how/586300/ 

https://economictimes.indiatimes.com/news/economy/foreign-trade/government-removes-restrictions-on-export-of-all-types-of-pulses/articleshow/61673095.cms 

As a result of growing number of production facilities being set up by companies such as that of Samsung, Xiaomi and Oppo, 107 new units have been set up by locals to make and supply various components to support these companies. 

In addition to new units being set up, imports in 2017 have also declined by 60%; the domestic contribution in terms of mobile handsets sold has jumped by 47% in value terms and reached 225 million in absolute numbers (Devan, 2017). That is equivalent to 80% of the phones sold in India being locally manufactured. 

Keeping up with the current levels of production, the industry has estimated that the annual value of production could raise up to Rs 3.5 lakh crore by 2019 (from Rs 2.5 lark crore). Not only are these figures in line with the “Made in India” campaign, this could also open up the export market for India as they are expecting to export a total of 120 million units by 2019 with a total value of Rs 100,000 crore.

1.3 Unintended Consequences
1.3.1 Consumer Market Dominated by Foreign Players

As global companies begin to change their strategy and switch to local production, the increase of tariffs and taxes no longer have an impact on them - this gives them the advantage of keeping prices competitive with that of local brands. With over 650 million users in India (of which half owns an smartphone), Chinese brands are the most preferred by them. This is because these Chinese players are able to offer phones with more compelling features, thus dominating the mid-range price segment in the country.

 

The collective market share of China-based vendors — especially Xiaomi, Vivo, Lenovo, OPPO and Huawei (Honor) — in India stands at 53 per cent in 2017, says International Data Corporation (IDC). According to Counterpoint Research, the combined market share of four top Indian brands — Micromax, Lava, Intex and Karbonn — was a mere 12.5 per cent last year.

 

The move to impose tariffs on the imports has helped to buy time for homegrown industries to expand without hindrance from international competition; however in the long run, it could end up building an inefficient industrial system as local companies fail to keep up with rapidly changing business environment. 

 

Local players are already showing signs of increased reliance on the government to protect them from foreign competition. Upon realising the Chinese players have a strong footing in India’s smartphone consumer market, local players are pressing the government to implement more measures to assist them - they feel that the local government has failed to provide a level-playing field due to a lack of capital and logistics. According to Nidhi Markanday, the Director of Intex Technologies, have stated that the local manufacturing sector are still not given enough incentives to achieve economies of scale and exports of electronics (IANS, 2018); it is said that the Chinese players owe their success to heavy support from the individual states as well as the budget allocated by the central government and hence, local players are expecting the same from their government. 

 

With India’s government continuously giving in to their demands (the government is intending to implement a phased manufacturing plan consisting of further tax reliefs and incentives on smartphone components and accessories), it will promote inefficiency and hence, weaken the industry in the future. 

 

In the first four years in office, Modi had encouraged foreign investments and such investments hit a record high in March 2017 as many investors had been attracted by India’s rapid economic growth. However, a sudden turn towards protectionism this year had shaken investors’ confidence as they remain uncertain if India is still pursuing market friendly reforms. 

 

Recently, on February 1, 2018, India’s government had raised tariffs on imported smartphones to 20% in its budget and hence, resulting in the increase in prices of Apple smartphones in India to $1,700 (Iyengar, 2018). In turn, it has prompted President Trump to suggest reciprocal tax on India as motorcycle companies such Harley Davidson are required to pay import tax to India while India enjoys exporting large quantities of motorcycles to U.S. for free. Tensions between U.S and India could potentially escalate into a tit-for-tat announcements of tariff on key imports and exports (similar to that of U.S and China), hurting both economies. 


Additional Links: 
https://economictimes.indiatimes.com/news/economy/policy/government-imposes-10-per-cent-customs-duty-on-imported-mobile-phones-parts/articleshow/59394238.cms
 

https://www.financialexpress.com/industry/technology/indian-smartphone-vendors-suffer-as-chinese-players-gobble-up-share/1075256/ 

http://money.cnn.com/2018/02/14/news/economy/india-modi-tariffs-protectionism/index.html

http://www.newindianexpress.com/world/2017/apr/18/china-wont-sit-idle-if-india-takes-protectionist-measures-against-smartphone-makers-media-1594958.html

India has emerged as a major agricultural exporter, with exports increasing from around $5 billion in 2003 to more than $39 billion in 2013. India is now the seventh-largest exporter of agricultural products as of 2013 (USDA, N.A.). The use of subsidies by the government help revive the country’s export sector. Free electricity and water for farmers, as well as subsidised seed, chemical inputs and transport are examples of how the government try to incentivise and help these farmers. In the short term, productivity increases and food prices have fallen (Flake, 2014). The tremendous export growth in India has been the highest in any country, and one of the drivers would be the growth in government support provided for agriculture. 

Government subsidies for locally produced goods coupled with import tariffs for foreign goods make local products more price competitive. In India, the government has been supporting the growth of its tech and telecom industry through initiatives “Made in India” and “Digital India”. These schemes provide capital subsidies to electronic manufacturing and design firms. India has since seen an increase in the production of smartphones from 45 million in 2015 to 100 million in 2016 (Bagchi, 2016). 

Such subsidies help to generate more jobs (e.g. 20 000 more people hired within a span of 10 months in the smartphone manufacturing industry in 2015) and also retain and circulate money in the local economy, generating growth.

With subsidies being handed out to farmers easily, it discourages them from innovating, cutting costs and diversifying land use (Edwards, 2018).  Farmers may be more induced to maximise these subsidies instead of taking risks to improve their practices. They become dependent on these subsidies to sustain their livelihoods, resulting in a less competitive agricultural sector. This would not benefit India’s economy in the long run. 

In addition, subsidies may result in loss of harvested crops. This happens as the economy only focuses on increasing total output for international trade but not pay attention to other important aspects such as infrastructural development that is integral for sustained economic growth. In India, harvest are lost annually due to improper storage. The Food Corporation of India (FCI), a government agency, held 68.7 million metric tons (MMT) of grain in storage on July 1 2014. 3 MMT of that supply (equivalent to the annual wheat consumption of the Philippines) were kept in sacks on the ground covered only with plastic sheeting (Pearson, 2014). This is an example of how India lacks proper infrastructures to manage its food storage. This is a serious issue for India which is already facing a starvation crisis. 

Rather than focusing on export and input subsidies, the government should focus more on providing subsidies to improve permanent useful infrastructure such as irrigation systems, electricity and storage. Food scarcity would be a long term effect of giving heavy subsidies to farmers without focusing on building proper infrastructures. 

Agriculture plays a huge role in India’s economy as two-third of the population depends on it for their livelihood. It is estimated that about 44% of India’s land area has degraded due to cultivation of marginal lands, improper crop rotations or deforestation as a consequence of shifting cultivation. Intensive farming, which has been promoted as a result of subsidies, has depleted soil of its nutrients (Gurumurthy & Goedecke, 2015). 

Resource overuse is also a critical issue as farmers are not motivated to use resources efficiently. For example, groundwater extraction results in water sources being depleted. Overuse of fertilisers and pesticides lead to soil erosion, nutrient imbalance, and losses in ecosystem services and biodiversity (FDI Team, 2013). These leads to serious environmental degradation that would adversely affect the country’s agriculture sector. 

 

From Article B, we see that India went against the WTO’s prohibition on new export subsidies in 2014 and began using export subsidies to make their produce more price competitive in importing countries. This protectionism action has disadvantaged producers from other nations as Indian farmers undercut them. This could spur a tit-for-tat reaction and eventually lead to a trade war, hurting political relationships.

For example, US has launched a dispute at the WTO to challenge India’s export subsidies. This dispute is happening at the same time as the trade dispute between US and China. US imposed 25% tariff on certain Chinese products as a way of expressing its unhappiness with Chinese companies demanding for technological intellectual property from US companies in exchange for access into the Chinese market. China reciprocated the same level of tariff on some of US products. As a result, US has threatened to impose an additional $100 billion tariff on their products. Experts fear that US may impose punitive actions on India for its unfair export subsidies practices (Duggal & Warrier, 2018). 

India’s export subsidies scheme is aimed at helping local producers to make a better income, however it may instead harm the farmers as well the local economy. Export subsidies cause the world supply to swell, causing equilibrium market price to fall. 

In the 2017/2018 season of sugar production, both Pakistan and India find themselves having a greater harvest, on top of the leftover surplus from the previous season. Pakistan thus increased the volume of sugar eligible for export subsidies, driving down the world price to US$340/tonne, which is way more competitive than India’s domestic price of US$460/tonne (due to high cost of production). To aid local farmers in reducing excess supplies, India has already reduced its 20% export tax on sugar. However, this is not enough and the government plans to tax local sugar sale and use the fund to provide export subsidies (Bhardwaj, 2018).

Thus, when countries provide export subsidies and world supply increases, world price falls, reducing the countries’ trade revenue as a result. Moreover, subsidies are obtained from taxpayers. Government subsidies protect inefficient producers who are not incentivised to reduce production cost. This would not improve the country’s competitiveness in the long run and would not promote sustainable economic growth. 

Government subsidies may not apply to all crops, hene farmers tend to switch to producing crops that receive the subsidies. In the case of India, with globalisation and free trade, subsidised crops (namely wheat, rice and sugar) has been allocated more land for farming while vegetables and fruits have seen a decline in production. 

This reduced diversification of crops (putting many eggs in one basket) makes India more susceptible to the negative effects of price fluctuations. When the price of an important crop falls, the other variety of crops may not be able to counter the negative effects of the falling price (O’Neal, 2017).  

In this globalised world, trading is integral for countries to obtain the things they need. This narrowing of product portfolio due to subsidies could also impact international trade by distorting the volumes of trading goods. For example, as India turn to produce more subsidised crops (e.g. sugar), they cause a surge in the supply available in the international market, causing prices to fall drastically, affecting the revenue of other nations that produce sugar as well. When India reduces the production of vegetables, its volume in the international trade market is reduced, causing an increase in world price of vegetables, making consumers from other countries to have to pay more. India is a huge agricultural player in the world, a change in their commodities production output would cause a change in the total volume in the world, impacting international trade (Mittal, 2007).

Additional Links:
https://cfo.economictimes.indiatimes.com/news/insight-us-challenge-to-indias-export-subsidies/63693613

Article B states that India plans to increase the subsidies given to the farmers, going against the rules-based international trading system. India proposes that the WTO reverse position and allow an increase in farm subsidies. This would be a huge impact to the world as India has the second largest area of arable land. 

Farm subsidies cause more harm than good to the economy, as it would result in food wastage, inefficient production, higher prices, risk of food supply shocks and several other adverse effects.