A Painful Stimulus

Protectionist streak is visible in the stimulus package that has been announced by the Prime Minister Manmohan Singh to kickstart demand in Indian economy

Noor Muhammad, New Delhi,  Hardnews

The global economic slowdown has come in handy for a lobby of large corporate houses that want to bring back the protectionist policies of the earlier days. The stimulus package announced by the government was meant to kick start demand in those sectors that had been hit by the slowdown of the economy due to trade compression, but close reading of the fine print shows that the UPA government is helping large corporate houses to beef up their profit margins even if it means hurting small enterprises and subverting competition.

These measures in the stimulus package could hurt the economy by raising costs of key raw materials for downstream industries in sectors such as plastic, steel, copper and aluminum.

For example, the government has re-imposed additional and special additional duty of customs on cement as part of the second stimulus package announced on January 2 this year. The government had withdrawn these duties in March last year in a bid to contain rising inflation. Similarly, the government has withdrawn duty exemption on zinc, ferro-alloys, thermo-mechanically treated bars and structurals.

Obviously, these measures are aimed at protecting the domestic manufacturers of these products against imports at the cost of small players in the respective downstream industries.Federation of Small, Micro and Medium Enterprises (FISME) has expressed serious concerns over the protectionist lobby having its way by raising the bugbear of economic slowdown.

"I see a very dangerous tendency gaining ground among a few large corporate houses which control manufacturing of raw materials- especially plastic raw material, steel, copper and aluminum", said Anil Bhardwaj, Secretary-General of FISME (Federation of Small, Micro and Medium Enterprises)."They are lobbying for higher protection through a combination of tariff and non-tariff barriers. Such moves will result in artificial disparity between international and domestic process of raw material and will render a large number of downstream small industries uncompetitive.  Because while the finished products of small industries will attract same duties, their input cost will rise because of new barriers" Bhardwaj told Hardnews.

He said: "We need to impress upon the government and desist them from resorting to such ad hoc measures, particularly imposition of non-tariff barriers. If government is convinced of protection they should do an across the board hike in import duties."