How Necessary Is Protectionism to Promote Industries?

If everything—from steel to mobile covers, glass, PET, and solar panels—needs protection, while hundreds of other products are already under some form of safeguard, then we must ask ourselves a deeper question: What is going wrong? And how can we change it?

It is a hard fact that China has flooded India with its heavily subsidized and highly protected industrial output. These products easily dominate domestic production and industries, thereby affecting employment and long-term manufacturing growth.

Indian manufacturers and their associations believe they need protection from products coming from around the world. It is often argued that producers in other countries benefit from cheap Chinese raw materials, which keeps their final product costs low. In such a situation, India feels the need to protect itself from all countries whose producers depend on these inexpensive Chinese inputs.

It is also true that India itself imports heavily from China—$113 billion worth last year, 11% higher than the previous year.

The government, however, faces a serious challenge: How to decide which products deserve protection and which do not? Every producer, acting in self-interest, will want the government to safeguard them from imports.

This raises an important question: What criteria should the government use to determine which products should receive some form of protection and which should be freely imported, perhaps with only a minimal duty?

Protection, in a way, is a form of economic justice, and before making decisions, the government must give all producers and users a fair hearing. The government should protect users just as much as it protects producers.

There are several ways to support and promote India’s manufacturing sector—by bearing certain costs, providing subsidies, simplifying business procedures, or adopting protectionism. Each of these has its own advantages and disadvantages.

Protectionism, however, benefits some at the expense of others, weakens competitive forces, fosters dependency, and encourages industry lobbying and political pressure. Therefore, protectionist measures must be used with great caution.

Protection leads to dependency on the government, which affects India’s long-term growth. Hence, whether it’s quality control orders, higher tariffs, or anti-dumping measures, all such actions should have a sunset clause.

Suresh Bahety
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