WASHINGTON – Less than a month after he declared to the World EconomicForum that India was open for business, Prime Minister Narendra Modi hasraised import duties to their highest in three decades, setting the stagefor a protracted trade war.
As he prepares to seek re-election next year, PM Modi has been ensnared bya global wave of protectionism that could threaten the foreign directinvestments India needs to achieve double-digit growth. He has made it moreexpensive to import parts for automobiles, cameras, televisions,electricity meters and smartphones, risking trade disputes from allies likethe U.S. and Germany to rivals like China.
“India has taken a dramatic protectionist turn,” Richard Rossow, an Indianpolicy expert at the Washington-based Center for Strategic andInternational Studies, wrote in a note. “The scale of India’s protectionistleap is surprising and likely to elicit a strong response from the UnitedStates and other major trading partners.”
President Donald Trump signaled tit-for-tat for tat move to punish Modi whilethe German Ambassador to India, Martin Ney, questioned the decision toraise custom duty on the import of auto components. The U.S. commercedepartment on Tuesday said it was examining imports of welded pipes fromIndia and five other countries.
All this could add up to bad news for India at the World Trade Organisation.
“This can escalate at the WTO,” said Rahul Shukla, Delhi-based executivedirector at Pricewaterhouse Coopers Pvt. “If they really want to help localindustry there’s so much more that could be done, and it’s true thatindustry needs help. But these are the highest barriers we have seen in along while.”
India’s move comes as it faces the widest trade deficit in three years anda resilient rupee. Data from the government is due on Thursday and thoughit is expected to show a pull back for January, India’s yawning deficitwith Asian powerhouse China is a matter of concern. – Bloomberg