Opinion India should lower tariffs – for the right reason

India shouldn’t fret over US President Donald Trump telling Apple Inc’s CEO Tim Cook not to make the country its next major manufacturing-cum-export hub after China. “We put up with all the plants you built in China for years. We are not interested in you building in India,” Trump claims to have said. Delhi mustn’t take that comment too seriously. Cook is ultimately accountable to the shareholders of Apple, which now makes about 40 million out of its 220 million-odd iPhones sold globally in India, and the balance from China. The Cupertino-headquartered tech giant’s plans to expand its operations in India are purely a function of the cost-competitiveness of assembling handsets here and the perceived need to diversify supply chains from China as part of a larger geopolitical risk mitigation strategy. These are business decisions, not made overnight or unmade at the whim of one person, however powerful.

India’s focus should be on making itself a preferred investment destination for not just Apple, but all global companies that made China their factory to produce for the world. That would mean going beyond assembling to creating a full-fledged manufacturing ecosystem — of the sort already existing in India’s automotive and ancillary sectors and needing replication in industries such as smart phones, computers and consumer electronics. All this requires economies of scale, which India can partly offer through its largely domestic market, like China’s. But true cost-competitiveness and operational scale-up comes only from making for the domestic as well as global market. Trump’s exhortation to Cook to confine Apple’s make-in-India plans to only taking care of iPhone sales in India seems more like wishful thinking. And India must prove just that — through stable policies, making it worthwhile for Apple to deepen its engagement by expanding both production capacity and the local supplier base.

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India also does not have to show excessive concern over Trump’s assertion of Delhi offering to “drop all tariffs” on goods imported from the US. The fact is that the bilateral trade agreement between India and the US is still under negotiation. What’s clear is that India is more open to cutting tariffs and offering greater market access for imports, just as it is seeking the same from its trade partners. This approach — a refreshing departure from the protectionist tendencies that gained hold during the first two terms of the Narendra Modi government — was noticeable in the recently sealed comprehensive trade deal with the United Kingdom. India’s economic history, both pre- and post-reform, provides sufficient evidence of growth acceleration whenever policymakers have displayed openness to foreign trade and investment. Lowering tariffs and allowing greater import competition is something India should do for its own sake — and not because Trump says so.