On Wednesday, the Department for Promotion of Industry and Internal Trade (DPIIT) reportedly directed e-commerce companies such as Amazon, Flipkart and Paytm to figure out a mechanism that will allow consumers to identify the country of origin for all the products sold on their platforms.
The latest directive comes amid a growing clamour for the boycott of Chinese products, in the aftermath of the clash between Indian and Chinese soldiers on the LAC. This is a troubling development. It signals a willingness on the part of the government to allow the discrimination, possibly the shunning, of products on the basis of their place of origin.
Coupled with the government’s push for “atma nirbharta” or self-reliance, marked by more zeal than prudence, and reports of it contemplating the raising of tariffs on imports, moves such as these appear to showcase an opportune political optics at a high economic cost — it could end up undoing the benefits and reversing the gains over the last few decades of free trade. It could presage a misguided shift towards protectionism, sliding into the failed policy of import substitution.
The idea of specifying the country of origin in products in today’s integrated world serves no rational economic purpose. The difficulties in executing it only underline its absurdity. At the crux of the matter is defining the “country of origin”. While products may be assembled in one country, the raw materials or components are often sourced from several other countries.
This makes it challenging to identify who “manufactures” the product. A distinction thus has to be made between “assembling” and “manufacturing”, and the extent of value added at each stage has to be estimated. Take, for instance, the iPhone. Its components, such as the touch screen display, memory chips and microprocessors come from a mix of US, Japanese, Korean and Taiwanese companies, not all of them manufactured in China. These individual components are shipped to China, where it is assembled, and then shipped across the world. So will an iPhone sold on an e-commerce website in India identify China as the country of origin? Even products that are assembled in India have components from several countries. How will the country of origin be worked out? Will it be based on value added? Who will be responsible for providing accurate information about the product — the platform or the seller?
Seen alongside recent developments, this latest directive raises concerns over the increasing protectionist impulses and inward looking signals emanating from the government. Such policies open the door for further lobbying, and facilitate rent-seeking. From the excessively wide rhetoric of self-reliance to reports of the government considering raising tariffs to boost domestic manufacturing, India seems to have forgotten the lessons learnt from its past mistakes.
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