The Economic Survey 2024-25, tabled by Finance Minister Nirmala Sitharaman in the Parliament, speaking on India’s tariffs and its policies, gave the example of North America and European countries, who it said did not catch up with Britain practicing free trade and open capital markets. This comes amid US President Donald Trump’s recurring complaints about India’s high tariffs. He also, separately, said that he would impose 100 per cent tariffs on BRICS nations, including India, if they try to de-dollarise the global economy by backing another currency.
Giving an example of the development of Europe and North America, the Economic Survey stated: “They did not catch up with Britain practising free trade and open capital markets.”
The survey said that the introduction of tariffs dates back to the Industrial Revolution, when Western Europe and North America worked towards catching up with the British industrial revolution. It quoted Matthew C Klein and Michael Pettis, who said in their book ‘Trade Wars Are Class Wars’ that the US levied tariffs on manufactured goods of about 45 per cent from 1870 through 1913, and American manufacturers were protected from foreigners but competed within the large and expanding domestic market.
The Economic Survey also quoted Professor Robert C Allen on the development history of Europe and North America, who said that North America and Western Europe caught up with the British industrial revolution by adopting an internal free market, stable domestic banking system, universal education, infrastructure and high external tariff.
It said that tariffs are a standard tool of industrial policy and are often seen as a way of supporting fledgling industries before they gain traction. Even so, using tariffs requires a calibrated approach that balances the sector’s needs with the costs imposed on the rest of the economy. “Tariffs are often perceived to have an impact on competitiveness. However, if used in a calibrated way, tariffs can aid the goals of industrial policy and help in the development of desirable sectors in the economy,” it said.
Modern-day industrial policies use a mix of policies, including tariff-based protection and other levers such as credit grants and export-related subsidies.
The survey said India’s import tariff policy has evolved over time, balancing domestic policy goals with the need to integrate into the global economy. “Tariffs vary by sector, with considerations like protecting sensitive sectors from foreign competition and permitting access to important raw materials and intermediate goods. India has ensured that tariff policies comply with WTO rules and regulations. Over time, several efforts have been made to rationalise tariffs further and address the inverted duty structures,” it said.
The Economic Survey also stated that between 2000 and 2024, the average tariff rates on dutiable items in India decreased from 48.9 per cent to 17.3 per cent, while in China, they fell from 16.4 per cent to 8.3 per cent.
“To summarise, the growth experiences of the industrialised West and the miracle growth economies of the East suggest that tariffs were indeed a prominent tool used to further industrialisation,” stated the Economic Survey, while also stating the importance of calibrated policies.