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Subject: Economics

  • Towards a new world order

    Context

    Social inequalities and the grim problems of stark and continuing poverty are at the epicentre of the new world.

    The ugly face of capitalism and growing inequalities

    • The concentration of the health: The latest Oxfam Report presented at Davos points out that 2,153 billionaires have more wealth than 4.6 billion people.
    • Rising poverty: The emergence of billionaires and oligarchs in different parts of the world coincides with increased poverty among the already poor people, especially children.
    • Concept of stakeholder’s capitalism: These realities make observers question the tenability of stakeholder capitalism as a concept.
    • Faults in the capitalism on display in 2008: The ugliest face of this capitalism was visible during the 2007-2008 economic crisis, first in the U.S. and thereafter across the European Union.
      • At that time, it appeared as if the global economy was on the verge of collapse.

    Intensification of energy use and sustainability

    • The relation between growth and energy: One of the chief characteristics of economic development is the intensification of energy use.
      • There is an unprecedented concentration of high energy density in all economic development strategies.
    • Use of non-renewable sources: The bulk of the energy continues to be generated from non-renewable sources.
    • Developing world capturing energy-generating sources: The developed world’s, and China’s, central objective is to capture energy-generating resources from across continents and put them to use to push GDP growth to greater heights.
      • In the process, sustainability is becoming a casualty.
    • Higher waste generation: The higher the use of energy, the larger the amount of waste generated. Entropy, like time, is always unidirectional, it only goes forward.

    Disposal of e-waste

    • High energy consumption and disposal of waste: Egregious consumption of energy by the developed world has been accompanied by the disposal of residual products (‘e-waste’) on the shores of many African and Asian countries.
    • Impact on the developing world: As a result of the disposal, the poor in the developing world are, unwittingly, drawn and exposed to toxic, hazardous materials like lead, cadmium and arsenic.
      • Hence, the ‘globalisation’ phenomenon has turned out to be nothing other than the exploitation of the developing world, with most countries being treated as a source of cheap labour and critical raw material.

    Unfairness involved in the Globalisation

    • Increasing consumption in the developing world: Countries in the developed world, and China, are ferociously using up finite raw materials without care or concern for the welfare of present and future generations.
    • Bright and the dark side of the development: Certainly, there has been significant technological progress which has brought about a revolution in the fields of healthcare and communications, but there is also a dark side to this.
    • System loaded in the favour of the rich: High expenses and Intellectual Property Rights load the system further in favour of the rich.
      • Pernicious system of carbon credit: To demonstrate how unfair the system is, one can look at the pernicious plan to set up a carbon credit system.
      • Under this, countries with high energy consumption trends can simply offset their consumption patterns by purchasing carbon credits, the unutilised carbon footprint, from poor developing countries.

    Understanding the Nordic Economic Model

    • ‘Nordic Economic Model’: It pertains to the remarkable achievements of the Scandinavian countries comprising Denmark, Finland, Iceland, Sweden, Norway, and allied territories. They also have-
      • Large public sector enterprises.
      • Extensive and generous universal welfare systems.
      • High levels of taxation.
      • And considerable state involvement in promoting and upholding welfare states.
      • Among the happiest countries: UN reports also indicate that the Nordic countries are the happiest countries in the world. The U.S., in contrast, is in 19th place.
      • The total population of the Nordic countries is estimated at almost 27 million people.
      • Among the richest countries: These nations are among the richest in the world when measured in terms of GDP per capita.

    Enlightened Global Order

    • Taking the Nordic model as a template, there are some ingredients that could be part of a new ‘enlightened global order’.
    • What does the Global Order include? These should include-
      • Effective welfare safety nets for all.
      • Corruption-free governance.
      • A fundamental right to tuition-free education including higher education.
      • And a fundamental right to good medical care.
      • Shutting of tax havens.
      • Tax structure: In Nordic countries, personal and corporate income tax rates are very high, especially on the very rich. If a just, new world order is to arise, taxes everywhere should go up.
    • Holding companies responsible: When it comes to the corporate sector, there are some new perspectives.
      • Changing the parameters of profit: In traditional business accounting, ‘bottom line’ refers to the financial year’s profit or loss earned or incurred by the company on pure financial parameters.
      • The four ‘Ps’: Following vigorous debates, a new format has emerged under which a company’s performance is measured through four ‘Ps’.
      • The first is ‘P’ for ‘profit’.
      • The second ‘P’ is for people — how the company’s actions impact not only employees but society as a whole.
      • The third ‘P’ is for the planet — are the company’s actions and plans sensitive to the environment?
      • The fourth ‘P’ is for purpose, which means the companies and individuals must develop a larger purpose than ‘business as usual’. They must ask: what is the larger purpose of the company, apart from generating profits?
      • Using performance in terms of four ‘P’s: Using big data and text analytics, a company’s performance can be measured in terms of all the four ‘P’s and a corporate entity can be thus held accountable. Market capitalisation need not be the only way to measure the value of a company.

    Conclusion

    Much work is yet to be done to uplift the global economic order, but the important point is that new tools are now emerging. What is required is a global consensus and the will to make the planet more sustainable, so that all individuals can live with justice and equality, ensuring that not a single child is hungry or seriously unwell because of poverty or lack of affordable medical help.

     

     

     

     

  • To help her work

    Context

    When it came to allocating funds, the budget relegates women’s economic participation to secondary importance.

    The current status of women in India

    • Lack of Equality: India continues to struggle to provide its women with equal opportunity.
    • A low score on international measures: On international measures of gender equality.
      • India scores low on women’s overall health and survival and ability to access economic opportunities.
    • Why it matters? Since the woman’s economic engagement is related to her own and her family’s well-being, the continuing decline in rural women’s labour force participation is a cause for concern, and both affects and reflects these worrying gender gaps.

    Why female labour force participation matters beyond social cause?

    • Source of economic growth: Ignoring India’s declining female labour force participation at a time of economic distress is a mistake.
      • Not just a social cause: Involving women in the economy is not a social cause — it is a source of efficiency gains and economic growth.
    • Missing out on many things: In a country where young women’s education is now at par with men’s, ignoring that half of the population isn’t participating equally in the economy means we are missing out on many things, like-
      • Innovation.
      • Entrepreneurship.
      • And productivity gains.
    • Large potential to increase in GDP: The large potential increases in GDP that could accrue to India and countries around the world, if they could only close their labour force gender gaps, are often cited.
      • 60% increase in GDP: A report by McKinsey Global Institute suggests that if women participated in the Indian economy at the level men do, annual GDP could be increased by 60 per cent above its projected GDP by 2025.
      • Underlying conclusion: The underlying conclusion is that women’s potential to contribute to GDP is huge.
      • Gain larger than any other region: The same analysis also suggested that India’s potential GDP gains through achieving economic gender parity were larger than gains in any of the other regions they studied.

    How can the state be responsive to women? 

    It can be ensured in the following two ways-

    • 1.MGNREGA-Important focus: An important focus could be a smarter policy and gender-intentional implementation.
      • A key example comes from MGNREGA, a programme whose official policy has long been to pay individual workers in their own bank accounts.
      • It is observed that this policy was typically not implemented and that women’s wages were usually being paid into the bank account of the woman’s husband.
    • Why paying wages in women’s account matters?
      • Giving women digital control of her wage:
      • This seemingly small change — giving a woman digital control of her wages — had a big impact.
      • Working women more outside their home: Women who received digital accounts plus training worked more outside their homes, not only for MGNREGA but also in private employment.
    • Higher economic engagement and lessening patriarchy
      • Importantly, women from especially conservative households reported higher economic engagement and an improved ability to move about their communities unaccompanied.
      • Lessening of patriarchal norms: Surveys conducted showed that the payment in account also began to influence restrictive patriarchal norms.
    • 2.Need to move beyond MGNREGA
      • Ease of doing business and reform in labour market reforms: Continuing to improve ease of doing business and addressing rigid labour market regulations can also draw more women into high-potential sectors.
      • Such as those supported under Assemble in India.
      • Potential in manufacturing: Rural women’s relative participation in manufacturing has grown compared to men’s, and manufacturing stands out as a promising means to pull young women, in particular, into the economy.
      • Potential in SMEs: Ensuring better support to small and medium-sized enterprises can help new businesses.

    Conclusion

    • Attune schemes to the aspiration of women: Ensuring that these programmes are attuned to the needs and aspirations of women is not expensive. But it makes a much difference.
      • Review of policy and programme: It requires a review of individual policies and programme implementation.
    • Increase the funding: The government needs to increase funding to programmes targeting women. Until then, the policy can build on the fact that pulling women into the economy isn’t just a function of budget allocations or social sector programmes. It’s also a matter of thoughtful policy design and political will.

     

     

  • [pib] ‘Apiary on Wheels’ Initiative


    ‘Apiary on Wheels’ was recently flagged off today by the Union Minister of MSME.

    ‘Apiary on Wheels’

    • It is a unique concept designed by KVIC for the easy upkeep and migration of Bee Boxes having live Bee colonies.
    • It is a platform which can carry 20 Bee Boxes from one place to another without any difficulty.
    • It is like an attachment which can be easily connected with a Tractor or a Trolley and may be pulled to any suitable destination.
    • Specially, in summers, the beekeepers usually adopted crude methods to feed the bees and many bees used to die in the process.
    • This concept of migration, cooling with the help of solar panels and sugar drips with zero risk to the lives of bees, will prevent any damages to the bee boxes or bee colonies and help produce quality honey.

    How it works?

    • Two large wheels on either side of the Apiary and 4 separate compartments with independent doors, having 5 bee boxes each help the platform to remain intact without disturbing the live bee colonies.
    • It is also connected with a solar panel system which automatically triggers a fan inside the compartment as soon as the temperature reaches 35 degree centigrade or above.

  • Missed call

    Context

    As the dust settles after the Union budget and the Supreme Court’s decision to not provide relief to telcos from their licence fee liabilities, it is an appropriate moment to step back and examine how we got here.

    The issue over the definition of AGR (Aggregate Gross Revenue)

    • What is AGR issue: Since the New Telecom Policy of 1999 (NTP 1999), operators were required to pay a percentage of their AGR to the government as licence fees instead of a one-time licence fee.
      • License fee based on earnings: This was done in exchange for moving operators from fixed licence fee-based on irrationally exuberant bids they had made in the mid-nineties-to a regime that determined licence fee based on revenue earned, thereby de-risking the obligation.
      • Why it matters? What constitutes AGR is important for the purpose of the computing licence fee and thousands of crore are dependent on this.
    • Consequences of ambiguity over the definition of AGR: Bundling – a pervasive phenomenon in most telecom markets have not taken off in India.
      • What is bundling? Product bundling is a marketing strategy that involves offering several products and/or services for sale as one combined product.
      • The fear is that handset sales will also come under the purview of AGR. Handsets, it could still be argued are part of the service offering.
      • Dividend on earning is considered as the part of AGR: Interest and dividend earnings on investments have also been included in AGR.

    Unfair practices and cancellation of licences by the court

    • Controversy over conversion charges: In 2003, “limited” mobility service was converted into a fully mobile service with a one-time payment of Rs 1,658 crore as “conversion” charges, generating controversy. It was labelled as a “back door entry” to full mobility.
    • Disguising international calls as domestic: Around the same time, the DoT used to levy a fee of Rs 4.75 per minute on international calls known as “access deficit charge” (ADC) to fund universal coverage. It is well known that an operator disguised international calls as domestic to bypass ADC.
    • Showing call revenue as internet services revenue: For some time, internet services attracted lower or no licence fee and it became expedient for operators to indulge in license fee “arbitrage” by showing more revenue from internet services.
    • Inflating subscriber numbers: Another manoeuvre was to inflate subscriber numbers to gain access to scarce spectrum in the days when fresh spectrum was administratively assigned based on subscriber numbers.
    • First come first serve policy: Finally, the shameful spectacle was the battle fought by operators to jump the queue to deposit earnest money for gaining rights over the spectrum that was oddly sought to be assigned by a method called “first come first served” and whose definition itself was quite elastic.
    • Cancellation of licence by the Court: Thereafter, in the litigation that inevitably followed, the Court cancelled 122 telecom licences and mandated allocation of spectrum by auction.

    Conclusion

    • Erosion of trust between the public and private sector in general and in the telecom sector, in particular, has been a negative externality of the reform process.
    • Restoration of trust between public and private sector is necessary: In this context, the appeal made by the finance minister during her budget speech for the restoration of “vishwaas” between the public and private sectors and between citizens and government is critical

  • New Umbrella Entity (NUE) for Retail Payment Systems

    The Reserve Bank of India (RBI) has proposed to set up a new pan-India new umbrella entity (NUE) or entities focussing on retail payment systems with a minimum paid-up capital of Rs 500 crore.

    New Umbrella Entity (NUE)

    • The proposed entity will set up, manage and operate new payment systems especially in the retail space.
    • It would comprise of but not limited to ATMs, white label PoS, Aadhaar-based payments and remittance services, develop payment methods, standards and technologies, monitor related issues and internationally.
    • It would take care of developmental objectives like enhancement of awareness about the payment systems.
    • The RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.
    • The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.

    Functions

    It will:

    • operate clearing and settlement systems
    • identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system
    • monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system and the economy in general

    Terms of reference

    • The entity eligible to apply as promoter or the promoter group for the NUE should be ‘owned and controlled by residents’ with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) or Payment Service Provider (PSP) or Technology Service Provider (TSP).
    • The shareholding pattern should be diversified.
    • Any entity holding more than 25 per cent of the paid-up capital of the NUE will be deemed to be a promoter.

  • A new approach on investment

    Context

    When Prime Minister Narendra Modi welcomes U.S. President Donald Trump to India this month the two leaders are expected to sign a first-ever trade agreement.

    What will be on the agenda of the trade deal?

    • GSP issues: The restoration of India’s Generalised System of Preferences benefits,
    • Pricing of medical devices.
    • And agriculture trade are all important.
    • Incremental outcomes: If the two sides continue efforts to achieve incremental outcomes, the start of negotiations on a comprehensive free trade agreement (FTA) could even be a credible scenario. Presently, this is not the case.

    What could be the incremental outcomes?

    • The most obvious candidates are-
      • Intellectual property rights (IPR).
      • IPR has historically been an area of contention between the two, but discussions on IPR have progressed well in recent years.
      • Digital trade.
      • Both are grappling with the appropriate scope and approach for regulating electronic commerce issues in this digital age.
      • Ideally, there should be room to seriously consider better ways to encourage skilled professionals to work in the other’s economy.
    • Progress on the investment

    There are already some shared interests in the area of investment.

    • For example, India invests in the U.S. and continues to seek U.S. investment in India.
    • FDI issue: Foreign direct investment (FDI), this is an important moment to do more to encourage it than simply welcoming it.
    • Need to negotiate o investment: Ideally, the two sides should move ahead to negotiate an agreement on investment matters that can provide greater transparency, predictability, and regulatory certainty to investors from the other country.
    • Negotiation on FDI off the table: It appears that the traditional approach through which countries pursue commitments on FDI, bilateral investment treaties, or ‘BITs’ (bilateral investment treaties) is off the table.
    • The Trump administration has put a hold on negotiating additional BITs and appears to be suspicious of how well they balance U.S. interests.
    • The Indian government is similarly sceptical of BITs, having cancelled all existing ones soon after it came into office.

    Need for the new approach on the investment issues

    • Until they resume their work on BITs, the two sides may find common ground in devising a new approach to investment issue.
    • What the new approach involve?
    • Taking cues from their respective FTAs: A starting point should be to review what they have done in their recent FTAs.
    • Abandonment of investor-state dispute settlement: The recently concluded U.S.-Mexico-Canada Agreement contains a novel approach on investment notably its abandonment of investor-state dispute settlement with respect to the U.S. and Canada.
      • Similarly, the Regional Comprehensive Economic Partnership, which India had been negotiating with ASEAN, Australia, China, Japan, Korea, and New Zealand, does not include investor-state dispute settlement.
      • While India chose not to join the Regional Comprehensive Economic Partnership when it was concluded at the end of last year, it appears to have been on board with the FTA’s investment provisions.
    • Where the agreement focus as of now? For now, however, both countries should focus on what is doable. A U.S.-India investment agreement could focus on-
      • Fair treatment for investors from the other country.
      • Regulatory transparency and predictability.
      • And approaches for resolving concerns short of investor-state dispute settlements.
    • At a later stage: At a later stage-
      • Most likely when the two are prepared to negotiate a more comprehensive bilateral FTA, they can go further on investment matters.

    Conclusion

    A new, hybrid approach on investment would be a substantial step in the right direction. It will be critical to sustaining momentum coming out of a first trade deal when the two leaders meet in Delhi. If India and the U.S. fail this test, the trade relationship is more likely to languish than blossom.

     

  • Shun fiscal adventurism

    Context

    In the run-up to the budget, there was enormous pressure on the finance minister to launch a fiscal stimulus so as to pump-prime the economy. That she did not succumb to the temptation is a big relief.

    Why fiscal stimulus is unwarranted?

    • There is already considerable stimulus in the system. 
    • Excessive fiscal deficit: To her credit, the finance minister took a step towards transparency by admitting to off-balance-sheet borrowings of 0.8 per cent of GDP for both the current and next fiscal year.
      • Acknowledging that the fiscal deficit would actually be higher at 4.6 per cent and 4.3 per cent of GDP respectively. This is already excessive.
    • Unrealistic projection of revenue growth: Add to this the unrealistic projections of revenue growth and disinvestment proceeds for next year and we have a potentially unsustainable fiscal situation.
      • Any stimulus on top of this would have been clearly

    Possibility of undermining the RBI’s efforts

    Fiscal pressure could harm the RBI’s efforts to revive the economy in the following ways-

    • Harming long term investment rates: Fiscal pressures will undermine the Reserve Bank of India’s struggle to revive investment by bringing down long-term interest rates.
    • Rating downgrades: It could result in a sovereign rating downgrade and jeopardise efforts to attract foreign capital.
    • Increase in inflationary pressure: It can stoke inflationary pressures, something we cannot afford when inflation is above the RBI’s target rate.
    • Pressure on the external sector: And most importantly, it can lead to pressures on the external sector.
    • Past experiences: The balance of payments crisis of 1991 and the near crisis of 2013 in the wake of taper tantrums were, at their heart, a consequence of extended fiscal profligacy.

    Counter-arguments of the supporters of the stimulus and fallacies in it

    • Low Debt-to-GDP ratio: It is argued that our debt-to-GDP ratio is low in international terms.
      • Misleading comparison: The data don’t bear this out. In any case, our experience, as well as research, shows that international comparisons of debt-to-GDP ratios, without reference to other parameters, are misleading.
    • Debt in domestic currency: It is also argued that we do not need to worry because our debt is mostly in domestic currency unlike that of many emerging economies.
      • The fallacy in this argument: Our debt in the domestic market didn’t protect us from previous crises, and there is no reason to believe that it will protect us from the next one, especially as our foreign debt is proportionally higher than before.
    • Robust foreign exchange reserves: It is argued that our foreign exchange reserves are robust and a balance of payments crisis is improbable. Such complacency is misplaced.
      • Fallacy- No forex is large enough in bad times: We should not forget the lesson that in good times any amount of forex reserves looks like it is too large, but in bad times no amount of reserves is large enough.

    Quality of fiscal consolidation

    • Quality a cause for concern: As much as the headline fiscal deficit numbers are a cause for concern, the underlying quality of fiscal consolidation is a bigger concern.
    • Increasing revenue deficit: Conveniently off the radar, the revenue deficit, far from coming down, is actually going up.
      • Two-third borrowing to finance revenue expenditure: This year, more than two-thirds of what the government is borrowing is going to finance current expenditures like salaries, pensions, interest payments and subsidies.
      • That ratio will rise to three-quarters next year.
      • Crowding out of the expenditure: This debt-financed revenue expenditure is simply unsustainable as it will increasingly crowd out capital expenditure.
    • Red flags on the state finances.
      • Another dimension of the quality of fiscal consolidation is the combined fiscal position of states which is, in fact, the big elephant in the room.
      • Together, states spend one-and-a-half times more than the Centre.
      • Larger development impact than Centre: Studies show that how efficiently states spend their money has a much greater development impact as compared to the Centre.
      • Red flags by the RBI on states finances: The states are not doing a good job. In its latest annual report on state finances, the RBI raised several red flags on state finances-
      • states’ increasing weakness in their own revenue generation.
      • Their unsustainable debt burdens.
      • And their tendency to retrench capital expenditures in order to accommodate fiscal shocks such as farm loan waivers, power sector loans under UDAY and a host of income transfer schemes.
      • Consequences in the market: The market will penalise mismanagement of public finances; it does not care who is responsible — the Centre or states — for an unsustainable fiscal stance.

    Conclusion

    • The fear of one-off fiscal stimulus becoming permanent: By far the biggest fear about a fiscal stimulus is that it is tempting to plunge into a spending programme saying it is a one-off and will be withdrawn when the pressure eases. Experience shows that it is very difficult to bail out. It is good that the finance minster avoided doing any such thing.
      • As Milton Friedman famously said, there is nothing more permanent than a temporary government programme.
    • Need to kick-start the private investment: What the economy needs for a sustained turnaround is kick-starting private investment.
      • Implementation of reforms: A necessary condition for inspiring investor confidence is the implementation of structural and governance reforms. This will be a long-haul.
      • That the budget did not launch the journey is a big disappointment. But, at least, the budget did not make a bad situation worse by embarking on fiscal adventurism.
      • It’s better, as Keynes said, to be roughly right than precisely wrong.

     

     

  • Protected Special Agriculture Zone

    The Cauvery delta region in Tamil Nadu will be declared as ‘Protected Special Agricultural Zone’ (PSAZ) by the TN govt.

    Cauvery delta PSAZ

    • Declaring PSAZ ensures that particular region will not be granted permission for any new projects like those related to hydrocarbons.
    • Only Agro based Industries would be given permission to be built.
    • The special protection will be bestowed on Cauvery Delta districts such as Thanjavur, Tiruvarur, Nagappattinam, Pudukottai, Cuddalore, Ariyalur, Karur and Tiruchirappalli districts.

    Significance of the move

    • The Cauvery Delta Region is Tamil Nadu’s rice bowl comprising above eight districts.
    • It is just and reasonable that projects like hydrocarbon exploration have raised concerns among farmers and other agriculture-based labourers.
    • Drilling for extraction of oil and gas in these regions that hampers agriculture and posing much environmental impact or health hazards will be stopped immediately.

  • [pib] Godavari and Cauvery River Linking Project

     

    The draft Detailed Project Report (DPR) of the Godavari and Cauvery River Linking Project has been completed by National Water Development Agency (NWDA).

    Godavari– Cauvery Link Project

    • The project consists of 3 links viz., Godavari (Inchampalli/Janampet) – Krishna (Nagarjunasagar), Krishna (Nagarjunasagar) – Pennar (Somasila) and Pennar (Somasila) – Cauvery (Grand Anicut).
    • This proposal to link Godavari, which is prone to flooding, and Krishna, which doesn’t have enough water, has been around for several decades.
    • While river-interlinking for the purposes of navigation as an idea was mooted by the British in India, in 1972, engineer and Union Minister KL Rao proposed the linking of Godavari and Krishna for irrigation.
    • The decades-old proposal finally took shape in the 2000s, and in 2016, the Andhra government linked the two rivers with the Pattiseema-Polavaram Lift Irrigation project, in Andhra’s West Godavari district.

  • India’s rerun of its protectionist folly mars the liberalization era

    Context

    The latest budget’s import tariff hikes signal that a three-decade commitment to trade openness has been all but abandoned.

    Detrimental effects of protectionism

    • In brief, both economic theory and a vast weight of evidence point to the detrimental effects of protectionism. These are-
      • Fostering inefficiency: Far from jump-starting the domestic industry, tariffs, quotas and other trade restrictions foster inefficiency among domestic firms that survive only because of
      • And do not become more productive under it, as the government’s threat to withdraw the protection is never credible.
      • The consumer is the ultimate loser: Meanwhile, upstream industries suffer higher than necessary input costs.
      • Consumers of final goods end up footing the bill.
      • Governments earn some tariff revenue, but never enough to warrant the distortion costs to the economy.
    • Tariff inversion: The tariff “spikes” cause greater distortion than a revenue-equivalent uniform tariff, and may lead to the problem of tariff “inversion”.
      • What is tariff inversion? A situation in which intermediate goods are taxed more heavily than final goods, thus paradoxically further disadvantaging, rather than aiding, domestic producers of final goods.
    • Rent-seeking by domestic industries: Tariffs worsens rent-seeking by domestic industries-
      • Protectionism increases lobbying: A force which would be muted in a world where tariffs are locked at a uniform level by statute, and, as a result, industries individually have less of an incentive to lobby for tariffs that are to be applied economy-wide rather than only for their own benefit.
      • Economists Arvind Panagariya and Dani Rodrik had formalized this intuition many years ago, and it matches both common sense and observation.
      • The apparently random list of sectors that would benefit from tariff increases in the recent budget-strongly suggests the possibility of rent-seeking behaviour.

    Conclusion

    Ample experience of import substitution in economies across the emerging world and over many decades, including in India until 1991, attest to the fact that protectionism, especially abetted by rent-seeking behaviour, is like a rabbit-hole: once inside, one keeps going deeper and deeper, and egress is difficult at best.