End negative protection to boost 'Make in India': Economic Survey

NEW DELHI: To promote ' Make in India' campaign, the government needs to shield domestic companies from foreign competition and eliminate those exemptions that work as 'negative protection', suggested the Economic Survey.

The survey said the win-win situation would be to end "all exemptions for the countervailing duty that will eliminate the negative protection facing Indian manufacturers, and help the 'Make in India' initiative without violating India's international obligations".

It said one of three ways to boost 'Make in India', which aims at making India a global manufacturing hub, is providing protection to the domestic firms from foreign competition through tariffs and mandatory local sourcing besides making regulations and taxes less onerous.

India's current indirect tax system acts sometimes to favour foreign production over domestically produced goods, thus providing negative protection.

The pre-budget survey talked about three sets of measures, including few protectionist measures, to make India a global manufacturing hub.

"The final set of responses -- what might be called 'protectionist' -- would focus on the tradability of manufacturing, and hence consist of actions to shield domestic manufacturing from foreign competition via tariffs and local content requirements; and provide export-related incentives.

"The effectiveness of these actions is open to debate given past experience. Moreover, they would run up against India's external obligations under the WTO and other free trade agreements, and also undermine India's openness credentials," it said.

These initiatives, however, may not go well with the World Trade Organisation (WTO) which is against protectionist measures. India is a key member of the Geneva-based multilateral body.

New Delhi is already being fighting a case in the WTO on issue of local content requirement in the solar sector.

India has always raised its serious concerns over increasing protectionist tendencies by the developed countries especially after the global financial meltdown.

Further the survey, which was tabled in Parliament today, also called for "providing subsidies, lowering the cost of capital" and creating special economic zones for some or all manufacturing activity in particular.

Talking about non-controversial steps, it said that there is a need to improve the business environment by making regulations and taxes less onerous, building infrastructure, reforming labour laws, and enabling connectivity.

"All these would reduce the cost of doing business, increase profitability, and hence encourage the private sector, both domestic and foreign, to increase investments. Indeed, these measures would not just benefit manufacturing, they would benefit all sectors," it said.