Which of the following is the drawback of increasing import duties ........

Current General Knowledge (CLAT) Others

Even while the government did not move ahead with its intent to impose basic custom duties (BCD) on solar equipment in the Union Budget, a phased manufacturing plan for solar cells and panels announced on February 1 may include this component.

In no way can we come to the conclusion that BCD will not take place, said Ministry of New and Renewable Energy Secretary Indu Shekhar Chaturvedi during a post-Budget media briefing.

“When you see the Budget carefully, it is written that a phased manufacturing plan will be notified by the government. So, the phased manufacturing plan is a kind of policy which includes everything, including basic custom duty,”

An estimated 85 per cent of this equipment has been imported from three countries — primarily China, alongside Vietnam and Malaysia — with a surge coinciding with the rollout of the Centre’s ‘Make-in-India’ programme.

The amount spent on imports of PV cells and modules in the last five years works out to nearly three times the cumulative Foreign Direct Investment (FDI) of $4.83 billion that flowed into the entire renewable energy sector. It is also well over six times the budgetary allocation made by the Centre to the renewable energy sector in the five years since FY’14.

India has an installed manufacturing capacity of around 3 GW (giga watts, or 3000 mega watts) for fabricating solar PV cells and around 10 GW for modules. But it does not have any commercial production for upstream stages of solar PV manufacturing, such as wafers, ingots and polysilicon. The official reason is the energy and capital intensive nature of the process.

The lack of an integrated set-up and the economies of scale — despite the government having allowed 100 per cent FDI in the renewable energy sector through the automatic route — translates into higher cost of domestic production.

This is despite the government extending a raft of sops for the production of solar PV cells and modules. This includes support through the Modified Special Incentive Package Scheme (M-SIPS) of Ministry of Electronics & Information Technology that offers a 20-25 per cent subsidy for investments in capital expenditure for setting up a manufacturing facility.

Which of the following is the drawback of increasing import duties?

Imposition of such duties should be done rarely and it must ensure a balance between the interests of the consumers and that of the local manufacturers.

Rather than increasing duties, the government needs to sort out the problems companies face in terms of land acquisition, infrastructure, and labour laws

Import tariffs would reduce competitiveness of the economy and might force the consumers to settle for inferior products.

Many companies do not want to manufacture in India as they still find it difficult to do business here.

Explanation:

Duty reduction in one sector will trigger hectic lobbying by manufacturers in other industry segments to push for similar protection from imports.

For Consumers - Import tariffs would reduce competitiveness of the economy and might force the consumers to settle for inferior products. The protection provided by higher duties is also likely to reward continued inefficiency of local manufacturers, thereby making goods costlier. For the Economy - A protected environment would price out companies that spend on research and development and disincentives innovation. This could potentially harm the entire ecosystem and also bring down the export potential of the country.