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Guest post: Taking the Right Steps to Boost Domestic Manufacturing

FK1954, Public domain, via Wikimedia Commons

By TM Chen, President, Continental Carbon India Limited

Policies we lay down today, pave way for the future of domestic industry. For instance, tariffs imposed on goods and services that enter the country can alter the balance of trade between the international trading partner and the tariff imposing country. There is a myriad of reasons why governments levy taxes on imports including protecting nascent industries, supporting domestic employment opportunities, and combatting aggressive trade policies. Case in point, the Finance Ministry’s recent decision to omit anti-dumping duty on imports of carbon black from China and Russia. Carbon black is a rubber-reinforcing raw material used in a multitude of rubber products and it is mostly used as a pigment in automobile tires. It is used in both tyre and non-tyre segments comprising 25 to 30 percent of the product weight. It is also used in paints, plastics, and inks as colouring pigments. The move by the government to revoke the anti-dumping duty will certainly benefit the small and medium-sized rubber goods manufacturers and tyre makers. However, the other side of the coin is that it will hamper the ability of making value-added profit for the rubber industry and turn into a cost competing cycle.

Even when the move is applauded by the All India Rubber Industries Association (AIRIR), it is critical to understand that there is a dire need to boost domestic industry in India especially at a time when we are reeling under the impacts of COVID-19. The country should strive to strike a balance in the domestic carbon black manufacturing industry and utilize the capacity of the local manufacturers to the fullest. The decision will digress the focus from manufacturing superior quality products to competition cycle, it would impact the salary of employees.

Understanding anti-dumping duty and its importance

Dumping duty, is a protectionist tariff imposed by a domestic government on imports that are believed to be priced below the fair market value. A product is considered as being dumped in a foreign market when it is introduced at a price lower than its normal value. It is the most common form of price discrimination in international trade. Now, let us delve deeper into India’s decision of rescinding anti-dumping duty on imports of carbon black. As per a report by TechSci Research, India carbon black market is projected to grow at a CAGR of 8.78%, stood at $ 879.26 million in 2016, and expected to reach $ 2,003.14 million by the end of 2026, “on the back of expanding manufacturing facilities of tire manufacturing companies coupled with implementation of anti-dumping duty on carbon black imports by Government of India.” Therefore, revoking anti-dumping duty can now stand as an obstacle in achieving the ‘atmanirbhar’ dream as it will discourage the nascent domestic carbon black industry in India.

In the absence of robust policies, manufacturers can charge different rates in different markets. This results in them setting lower prices in foreign markets and higher prices in domestic markets causing material injury to the domestic producers. If price discrimination takes within one economy, the government can intervene to stop consumer exploitation. Similarly, in the international context, it is the antidumping duty that protects the domestic industries and consumers in the long run. Levying such duties is critical as in some cases companies charge low prices to foreign consumers with an intention of wiping out the domestic industry and eventually acquiring monopoly in that country. Another important aspect here is, when firms dump their products in other countries using price discrimination as a strategy for profit maximisation, it leads to production of low-quality products. In the light of this, rescinding anti-dumping duty on carbon black would do more damage than good to India.

Reviewing the move with a bird’s-eye view

Antidumping duty is being increasingly used, over the past few years, to rectify the market distortions that resulted from liberalization of international trade. With an expectation of achieving better margins once their competitors exit the marketplace and to ensure better penetration in foreign markets, several countries like China, Japan, Taiwan and Korea have been accused of dumping their products in the international market. Although India has not been accused of dumping products in the foreign market, it has been subject to heavy dumping from other countries. Now, questions that arise are, what will we achieve by revoking anti-dumping duty on raw materials such as carbon black? And is this the right move if India wants its domestic industry to thrive?

This article does not necessarily reflect the views of Health Issues India’s editorial board, nor its publisher.

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