Question

Tariff liberalisation policies and the liberal fdi policy regime, enveloped within a passive industrial policy framework, have resulted in indias increased electronics import dependence. Critically analyze.(250 words)

Answer 1

Tariff liberalization policies- India joined the World Trade Organization’s (WTO) Information Technology Agreement (ITA-1) in 1996, with the conviction that lowering duties on a range of ICT products under the ITA-1 would boost the competitiveness of India’s software exports, apart from increasing their market access. Compared to the 1993–98 period electronics sector witnessed significant net decline in total factor productivity growth (TFPG) between 1999 and 2004. This downward trend continued after trade liberalisation was intensified from 1997 onwards under the ITA-1 which was then exacerbated by the equally non-strategic tariff liberalisation carried out by India under its free-trade agreements (FTAs) with the ASEAN and Japan and South Korea, countries that were already deeply integrated into global value chains (GVCs) in the electronics sector.FDI policies have provided limited incentive for large foreign original equipment manufacturers (OEMs) and electronics manufacturing service providers to invest in local production. Instead, they typically choose to only set up final assembly plants in India . A trade policy that promotes duty-free imports will clearly reduce the appeal of domestic production, particularly in a scenario where there is inadequate policy support for enhancing productivity at the firm and industry levels.Discuss how the industrial policy framework failed to recognize the need to encourage technological innovation through government funding; protect domestic industries; enhance the productivity of the industry as well as labour, ensure significant value addition; integrate ourselves into global value chains etc.