ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Lessons from Difference-in-difference Results

Is India Ready for Tariff Reforms?

Recent trade models with fi rm heterogeneity predict that trade liberalisation reduces the number of fi rms and the fi rms’ markups, while it increases the average size of fi rms. The present study attempts to test these predictions in the context of trade reforms in India with the Annual Survey of Industries data over two decades (1987–88 to 2017–18) by using a difference-in-difference approach and comments on the recent policy framework in that light.

India has witnessed interesting transitions in policy orientation and indu­strial performance since the early 1990s. Graduating from the four-decade-long import substitution (self-reliance) policy in 1991, India initiated the liberalisation policies. Subsequently encouraged by the prospect of the World Trade Organization (WTO)-induced tariff reforms in partner countries, during 1995–2004, ­India relied heavily on the multilateral reform process for its export growth. However, as the anticipated market ­access reforms through the multilateral route were not easily forthcoming, from 2005 onwards, the country started entering into several strategic regional trade agreements (RTA). However, the tariff reforms, both under unilateral as well as through preferential routes, led to a growing stress on the manufacturing sector due to rising imports from the “East” (Cha­udhuri 2015). In response, the country launched the Make in India initiative for reviving domestic industries in 2014.

It subsequently emerged that India is specialising in the relatively lower ­value added end of the manufacturing spectrum vis-à-vis the RTA partners (Dhar 2019), which further widened the trade deficit. With mounting domestic pressure against further tariff reforms, India finally left the ongoing Regional Comprehensive Economic Partnership (RCEP) negotiations with the South and Southeast Asian partners in 2019, marking a change in its “eastern” RTA strategy. It further launched the Atmanirbhar Bharat Abhiyan (self-reliant India scheme) in 2020 to revive the domestic eco­nomy (GoI 2020a). Under the scheme, imports of certain strategic products are restricted for facilitating domestic production (GoI 2020b), thereby completing a full circle in India’s trade policy regime.

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Updated On : 19th Sep, 2022
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