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Trade Barriers in India

Trade Barriers in India

A restriction imposed on the free flow of trade is known as the trade barrier. The trade barriers are classified as tariff barriers or non-tariff barriers. This article discusses in detail the barriers faced by the U.S. companies when exporting to India.

Import Licensing

The most common non-tariff barrier is the prohibition or restriction of goods that are imposed through import licensing requirements. Certain products are subjected to licensing related trade barriers, although India has eliminated its import licensing requirements for most consumer goods.

The import licenses for motorcycles are provided only to foreign nationals that permanently reside in India, working in India for foreign firms that value more than 30% equity or to foreign nations that work at embassies and foreign missions. Very few domestic importers import vehicles without a valid license, where the imports are counterbalanced by exports that is attributable to the same importer.

Negative List

India maintains a ‘negative list’ of imported products that come under various forms of nontariff regulation. The negative list is further divided into three categories. They are

  • Banned or prohibited items that include tallow, fat and oils of the animal origin.
  • Restricted items that require an import license for goods like such as livestock products and certain chemicals.
  • Canalized items like pharmaceuticals that can be imported only by the government trading ownerships that required the cabinet approval regarding the import timing and quantity.

Entry Requirements

With respect to entry requirements, India has divided goods that are new, those goods that are secondhand, remanufactured, refurbished or reconditioned. India permits the imports of secondhand capital goods by the end users without carrying an import license, provided the goods are undamaged for five years. The country’s Foreign Trade Policy segregates remanufactured goods in a similar manner to the secondhand products, without considering that the remanufactured goods have been restored to the original working condition, meeting the technical and safety specification that is applied to the products made from raw materials. Reconditioned computer spare parts can be imported only if an Indian Chartered Engineer certifies that the equipment retains at least 80% of its life, while redeveloped computer parts from domestic sources are not applicable for this requirement.  Some of the problems that the stakeholders’ report includes the excessive details that are needed in the license application, the quantity limitation that is set on the specific part number and the long delays between the application and the grant of license.

Testing, Labelling and Certification

The Indian Government has sorted out 109 commodities that that must be certified by the Bureau of Indian Standards (BIS) and the National Standards body. Apart from this, the Food Safety and Standards Authority of India, implemented under the Food Safety and Standards Act, 2006 laid down standards for articles of food and regulating the manufacturing, processing, distribution, sale and import of food. These regulations were brought in to make sure the quality of goods. Whereas, other countries use them as measures to protect the goods.

Anti-dumping and Countervailing Measures

Anti-dumping and countervailing measures are executed by the WTO Agreements to protect the domestic industry from facing severe injury that is caused by dumped or subsidized imports.  India imposes these regulations on a time-to-time basis to protect the domestic manufacturers from dumping. This anti-dumping policy has raised concerns about the transparency and due process. The officials have taken steps to increase the application of the antidumping law.

Export Subsidies and Domestic Support

Several export subsidies and other domestic support have been provided to various industries to make them globally competitive. Export earnings are exempted from taxes and the exporters are not liable for the local manufacturing tax. The export subsidies intend to displace exports from other countries into third country markets, whereas the domestic support acts as a direct barrier to access the domestic market.

Export Subsidy Programs

Indian has launched multiple export subsidy programs that include exemptions from taxes for certain export-oriented enterprises and for exporters in Special Economic Zones. Sectors like textiles and apparel, paper, rubber, toys, leather goods and wood products receive subsidies considering the exemptions from customs duties and internal taxes that helps in determining the export performance. This has made the Indian textile sectors to become a beneficiary of many export promotion measures. Besides this, the Government of India has increased the subsidy for garment sectors to develop employment opportunities.

Implementation of Policies

In 2015, the Indian Government authorized 20 per cent of its public procurement to be given to the Indian based micro, small and medium enterprises. In 2017, the Indian cabinet has approved a public procurement policy that encourages preferences for Indian manufactured goods to promote the ‘Make in India’ initiative. This is aimed to develop the local manufacturing and to boost the domestic demand for locally manufacturing products. The National Manufacturing Policy is used to increase the local content requirements in government procurement in certain sectors like information communications technology and clean energy. The Department of Industry Policy and Promotion (DIPP) has issued two notifications under the Public Procurement ‘Preferential Electronics Order’ and ‘Cyber Notification’ that requires local content for state and central government procurements that give preferences for domestically manufactured electronic goods and cyber-security software products.

Service Barriers

The following are the services that include restrictions.

  • Insurance
  • Banking
  • Securities
  • Motion pictures
  • Accounting
  • Construction
  • Architecture
  • Engineering
  • Retailing
  • Legal services
  • Express delivery services
  • Telecommunication

The Indian Government has strong ownership in major service sectors like banking and insurance. Foreign investments made in business in certain service sectors that include financial services and retail. Foreign participation in professional services has also been restricted, and in the case of legal services, it is prohibited entirely.

Other Barriers

Equity restrictions and other trade-related investment measures result in an unfair advantage to domestic companies. The Indian Government had restricted FDI in sectors like retail trade and agriculture. Besides this, there is an unpublished policy that advances the counter trade. Several Indian companies both government-owned and private organise small countertrades.