India’s Trade Policy and Its Impact on Industries

In December 2024, the Government of India initiated a safeguard duty probe on steel imports. This decision followed intense lobbying by the Indian Steel Association (ISA). The move aims to protect domestic steel producers but has sparked controversy, particularly from Micro, Small and Medium Enterprises (MSMEs). They argue that high domestic steel prices hinder their competitiveness. Similar protectionist measures have been observed across various sectors, including textiles and solar energy.

Safeguard Duties and Market Dynamics

The ISA’s request for a safeguard duty is not new. India has imposed protectionist measures since 2010. However, the current push for a 25% duty hike has met resistance from MSMEs. They claim that domestic steel prices exceed those of imports, creating an uncompetitive environment. The ISA’s members include major players like Jindal Steel and Power Ltd and JSW Steel Ltd. The disparity in steel prices raises concerns about market concentration.

Quality Control Orders in Textiles

Since 2021, the Government of India has implemented Quality Control Orders (QCOs) on synthetic textiles, particularly polyester and viscose fibres. These orders restrict imports, benefiting large companies like Grasim Industries and Reliance Industries. However, they adversely affect smaller textile manufacturers. The Confederation of Indian Textile Industry (CITI) has raised alarms about high domestic costs and supply shortages due to these restrictions.

Impact on Solar Energy Sector

The Ministry of New and Renewable Energy has reinstated a mandate requiring solar projects to source modules from select domestic manufacturers starting April 2024. This decision has raised concerns about increased household electricity tariffs. Domestic solar modules have become more expensive compared to imports, creating a potential monopoly among a few manufacturers.

Concerns Over Anti-Dumping Duties

The Directorate General of Trade Remedies (DGTR) has recommended anti-dumping duties in numerous cases, particularly in the chemical sector. Many of these recommendations favour sole domestic producers, which could lead to higher costs for downstream users. The Finance Ministry must balance the interests of domestic producers and the need for affordable raw materials.

Trade Barriers and Economic Implications

High tariffs and trade barriers are intended to protect domestic industries. However, they often lead to market concentration and inflated costs. Experts warn that excessive protectionism can cultivate local monopolies, ultimately harming consumers. NITI Aayog has cautioned against closing off imports, denoting the importance of competition for economic growth.

Recent Developments in Copper Imports

A recent QCO on refined copper imports threatens supply chains. Major Japanese producers, supplying portion of India’s copper, lack BIS certification. This situation has created potential shortages for downstream users. The government faces pressure to address these compliance hurdles to prevent disruptions.

Government’s Response to Industry Concerns

In response to the growing concerns from MSMEs and other industry bodies, the government is considering a review of customs duty rates. The aim is to simplify trade and reduce disputes. Continuous dialogue with stakeholders is crucial for achieving a balanced trade policy that supports both large and small enterprises.

Questions for UPSC:

1. Critically analyse the impact of safeguard duties on small and medium enterprises in India.
2. What are Quality Control Orders (QCOs)? Discuss their implications for the Indian textile industry.
3. Estimate the effects of high tariffs on the solar energy sector in India. What are the potential consequences for consumers?
4. Point out the challenges faced by the Government of India in balancing protectionist measures with the need for competition in the market.

Answer Hints:

1. Critically analyse the impact of safeguard duties on small and medium enterprises in India.

1. Safeguard duties aim to protect domestic industries but can lead to higher raw material costs for MSMEs.
2. MSMEs argue that high domestic prices make them uncompetitive compared to imported goods.
3. Protectionist measures may strengthen monopolies, harming smaller players in the industry.
4. Consultations often exclude MSMEs, leading to decisions that do not consider their interests.
5. Overall economic growth may be hindered as MSMEs struggle to compete with larger, protected firms.

2. What are Quality Control Orders (QCOs)? Discuss their implications for the Indian textile industry.

1. QCOs are regulatory measures that set standards for imported goods to ensure quality and safety.
2. In textiles, QCOs restrict imports of synthetic fibres, benefiting large companies like Grasim and Reliance.
3. Smaller textile manufacturers face challenges due to higher domestic prices and limited access to raw materials.
4. QCOs can create supply shortages, driving up costs for downstream users in the textile sector.
5. CITI has raised concerns about the negative impact of QCOs on competition and market dynamics.

3. Estimate the effects of high tariffs on the solar energy sector in India. What are the potential consequences for consumers?

1. High tariffs on solar imports can lead to increased costs for solar projects, raising electricity tariffs for consumers.
2. Domestic solar modules have become more expensive compared to imports, reducing competitiveness.
3. Limited competition may lead to monopolistic practices among a few domestic manufacturers.
4. Higher costs could slow the adoption of solar energy, impacting India’s renewable energy goals.
5. Consumers may face higher energy bills and fewer options in the solar market due to reduced competition.

4. Point out the challenges faced by the Government of India in balancing protectionist measures with the need for competition in the market.

1. High tariffs intended to protect domestic industries can inadvertently create monopolies and inflate prices.
2. There is pressure from MSMEs and industry bodies to ensure fair competition in the market.
3. The government must consider the long-term economic implications of protectionist policies on consumers and industries.
4. Balancing the interests of large domestic producers with those of smaller enterprises is a complex task.
5. Continuous dialogue with stakeholders is essential to formulate effective trade policies that promote competition.