India gets called the "tariff king." Why are Indian tariffs so sticky? Do they benefit the economy?

India taxes imports more heavily than almost any other large economy, several times the American average, and far more than that on food. The nickname is wholly earned. The case for tariffs is simple: they stop Indian producers being undercut and give them room to grow. Everything rests on what a producer does with that room.

A company good enough to sell abroad is good enough to sell at home. Foreign markets set the harder test, since a firm must beat the world on price and on quality to win a single order there. A firm that has only ever sold at home has passed no such test, and has little reason to cut costs or raise its game. Competing builds the ability to compete. Protect a producer long enough, and it comes to depend on the protection.

Tariffs then rebound on the exporters India does have, through a distortion India has never fixed: the country often taxes the parts of a product more heavily than the finished product. A maker of solar panels or hand tools pays stiff duties on the imported steel and components it needs, and it starts out costlier than its foreign rivals before it competes for a single order. A tax on imports becomes a tax on exports, and a tax on every Indian who buys the dearer good.

India cut its average tariff from around 120% in 1991 to about 13% by 2014, and that opening powered the export boom that followed. Duties have climbed again since, across some 3,200 separate increases that now reach about 70% of what the country imports. Exports peaked at a quarter of the economy in 2012 and fell under a fifth by 2019. Services exports kept growing, while goods exports grew at close to zero per cent a year for seven years. World trade held steady at about 30% of world output across those same years, so India’s own choices caused the stall, and tariffs fall on goods, exactly where the stall happened.

Why, then, do tariffs keep coming back? A few visible producers collect the benefit and lobby hard to keep it, while the cost spreads so thin across so many buyers that almost nobody traces a higher price back to the duty behind it. Duties set item by item make the problem worse, since every industry asks for its own carve-out and customs officers gain a lucrative discretion. Protection spreads too, with no date on which any of it ends: shield the phone, and its parts must be shielded next.

Underneath all of it sits a belief about India: that the home market is so vast that firms will build here simply to serve it. Strip out the hundreds of millions too poor to buy much, allow for how much of their income the better-off put into savings, and India’s real consumer market comes to somewhere between one and five per cent of the world’s, perhaps a fifth of China’s. The claim that India’s large middle class can supply the scale most countries seek abroad rests on weak foundations. Exports drove three decades of Indian growth. China, when its economy was the size India’s is now, reached the opposite conclusion: it judged its own market too small, joined the world trading system, and began the largest export drive in history.

In India, the duties keep coming back, and workers pay the price in the millions of jobs that never get created.