India’s Import Tariff Evaluation during Recent Financial Crisis
| Author | Nalin Bharti,Priyanka Sinha |
| Published date | 01 February 2014 |
| Date | 01 February 2014 |
| DOI | http://doi.org/10.1177/0015732513516036 |
| Published By | Sage Publications, Inc. |
| Subject Matter | Articles |
India’s Import Tariff
Evaluation during Recent
Financial Crisis
Priyanka Sinha
Nalin Bharti
Abstract
There are two different opinions about India’s import liberalization surfaced in
the recent global financial crisis era. Some expressed India to be one of the high-
est trade restrictive economies and others appreciated India for lowering import
tariffs and making trade free. This empirical exercise compares import tariff in
pre- and post-crisis. Trade Liberalization Evaluation (TLE) methodology is being
used to see the dynamic and general equilibrium analysis of pre- and post-
crisis of India’s import tariff liberalization through a set of indexes and graphs.
India’s applied average tariff rates are collected from Integrated Data Base (IDB),
World Trade Organization (WTO). As per the requirement of TLE, four sectors
were evaluated. Service sector is not included in this work since India is one
of the services exporting economy. In total, 200 import items were collected
which includes 50 items in each sector namely agriculture, heavy industry, light
industry and allied areas. As a result of sectoral compression between pre- and
post-crisis, agriculture shows expansion, while heavy industry and light industry
shows contraction and allied shows stagnation. The overall comparison of Trade
Liberalization Stage (TLS) Index shows a developed stage of India’s trade liberali-
zation. This article may be imperative for importers and business community of
India and the world.
JEL: G01, F10, F13, F14, F15
Keywords
Trade liberalization, import tariff, India, global financial crisis
Article
Foreign Trade Review
49(1) 45–93
©2014 Indian Institute of
Foreign Trade
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/0015732513516036
http://ftr.sagepub.com
Priyanka Sinha, Doctoral Candidate, School of Humanities and Social Sciences, Indian
Institute of Technology Patna, Patna. Emails: priyankasinha04@iitp.ac.in; prnksinha.04@
gmail.com
Nalin Bharti, Assistant Professor, School of Humanities and Social Sciences, Indian Institute
of Technology Patna, Patna. Emails: nalinbharti@iitp.ac.in; nalinbharti@gmail.com
Foreign Trade Review, 49, 1 (2014): 45–93
46 Priyanka Sinha and Nalin Bharti
Introduction
The recent global financial crisis which emerged in the US in 2007 focused largely
on the so-called subprime crisis (Roach, 2009). It was a dangerous unregulated
market (Roubini, 2009). During this period, financial globalization was gaining
lot of momentum whose impact turned out to be quite negative and was noticeable
in many aspects of world economy. Due to rapid global integration and deep and
complex interconnections between financial institutions, the crisis quickly moved
across assets, markets and economies. The rest is history or, more precisely, his-
tory in the making (Blanchard, 2008). The recent global financial crisis has made
many countries restrictive towards import. Literature on post-financial crisis and
India’s trade policy do support this restrictive trade practice which was high-
lighted in the literature review. This particular article is trying to see the intensity
of India’s restrictive import policy through the analysis of most favoured nation
(MFN) tariff for pre- and post-financial crisis.
Literature Review
There are different sets of literature which provide two opposite opinion about
India’s trade liberalization during financial crisis. Lamy, 2009 as cited in (Nanto,
2009) pointed out that members of the World Trade Organization (WTO) were
showing upsetting tendency towards trade protectionism as a result of the deepening
global economic crisis. WTO had identified 85 verified trade measures imposed by
23 countries between September 2008 and March 2009. The large majority were
trade-restrictive, although some were in the direction of trade liberalization. The
largest number of measures were imposed by India; most of them were trade restric-
tive (duty hikes, import bans introduction of licensing requirements, anti-dumping
actions, etc.); and some were non-restrictive (removal of export duties). European
Commission Trade (2009) too reported India’s Safeguard-Action taken to protect
specific industries such as uncoated paper and copy paper, certain boards of woods,
coated paper and paper board, acrylic fibre, hot rolled coils, sheets and strips.
Trade Policy Review, India, 2011, WTO has appreciated India. It says, ‘there had
been a reduction in the average MFN tariff; members encouraged India to make its
tariff regime simpler and more transparent, and to narrow the gap between the bound
and applied rates. They also urged India to simplify its tax system, for example by
eliminating certain additional levies and by introducing a tax on goods and services at
the national level. Annual Report 2009–2010 and 2010–2011, Ministry of Commerce
and Industry, Government of India highlighted how India has pursued a number of
bilateral as well as regional deals with the countries and trade blocs. Hence, India’s
active pursuit of FTAs was an outcome of the stalemate at WTO and partly due to
outbreak of global financial crisis which made many countries to turn inward and
trade restrictive. India is likely to intensify its efforts towards regionalism in Asia and
other countries of the Global South as part of its overall diversification strategy.
Foreign Trade Review, 49, 1 (2014): 45–93
India’s Import Tariff Evaluation during Recent Financial Crisis 47
Foreign Trade Policy (FTP) (2009–2014), embarked on a diverse policy frame-
work in the context of global financial crisis and conferred a special focus to
enable competitive exports in the new emerging markets. New emerging markets
have been identified and given a special focus to enable competitive exports from
India. FTP has endeavoured to diversify products and markets through rationali-
zation of incentive schemes. Mohanty (2010) argued that despite sound funda-
mentals and no direct exposure to the subprime assets, India was affected by the
crisis through all the channels—trade, financial and confidence channels—which
have reflected India’s global integration. RBI (2010) observed that global finan-
cial crisis got transmitted to Indian Economy through all three channels. The vec-
tor autoregression (VAR) analysis in this article shows that compared to trade, the
financial sector has more output variation in GDP. Rajesh, Bordoloi and Bharti
(2011) examined the role of trade in transmission of global financial crisis in India
and reached to the conclusion that GDP growth in India is primarily driven by
domestic consumption while external demand plays a minimal role.
Based on these literatures, it was imperative to have a study on India’s applied
import tariff liberalization during the crisis.
Research Methodology and Limitation
This particular study is based on the Estrada (2004) Trade Liberalization Evaluation
(TLE) Methodology (which is divided in to four different phases). Lombaerde (2006)
pointed out mathematical limitations of Estrada’s fixed average tariff and its inter-
pretation. Lombaerde (2006) do raise the question on the missing regional dimen-
sion of the model but also supports Estrada on the ground of the application of this
model to a single economy, any set of economies or all economies. Estrada (2006)
re-supported the model saying that the main reason to use binary system in TLE
Methodology in each multi-input database is that all variables have the same level of
importance and weight in the study of free trade areas. This helps in maintaining
equilibrium among all variables in each multi-input database. This particular study
is limited to the import tariff only and non-tariff barriers (NTBs) are not considered
for the evaluation. Based on these arguments in Phase–1 of the TLE model, MFN
import tariff for 200 items are divided into four different sectors and are collected for
eight years during the period (2001–2011). India being a service exporting economy
in the analyzed period is not considered as a sector in this study, because the model
is looking for import liberalization. For this particular study agriculture, allied, heavy
industry and the light industry are selected to fullfill the requirement of the Estrada’s
TLE model. As a part of trade liberalization comparison between pre- and post-crisis
the data are again divided into two parts, i.e., 2001, 2002, 2006 and 2007 are part of
pre-reforms period and 2008–2011 is the part of post-crisis period. In Phase–2, the
tariff data is computed for getting a multi-input tariff database. From this Trade
Liberalization Index, by production sector named as Xi is prepared. In Phase–3, the
Area of Coverage of Trade Liberalization (ACTL) Index is measured through graph.
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