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Former Reserve Bank of India (RBI) deputy governor Viral Acharya. | Photo credit: PTI
Former RBI deputy governor Viral Acharya on Monday (September 2, 2024) called for reduction in tariffs and abolition of groupings, while urging the government to refrain from protectionist policies to allow competition so that “Indian Tigers” can emerge as global players and Indian consumers can get products at competitive prices.
Mr. Acharya suggested reducing concentration (of business and wealth) in the hands of large groups who were benefiting from tariff barriers and making excessive profits by not investing to face global competition.
“India must shake up large industrial conglomerates and boost competition by allowing foreign companies to invest in domestic manufacturing,” he said, adding that tariff protection has stifled innovation.
Mr Acharya, the CV Starr Professor of Economics at the New York University Stern School of Business, was addressing an event organised by Alera Capital in Mumbai.
“The protection extended to Indian corporates through high tariffs has stifled innovation in manufacturing and created inefficiencies, thereby harming the interests of consumers,” he said.
Stressing on the need to remove tariffs in India, Dr Acharya said India has the highest trade barriers and ranks fourth after Egypt, Sudan and Venezuela. He said the average tariff in India is 20% which has increased from 17% in the last few years. It should be at par with China and Korea so that its companies can become global players.
“Indian corporates are in a comfortable position where they do not need to innovate or build global brands as they are earning good profits by leveraging domestic markets in a well-protected business environment,” he said.
“The protectionist environment is clearly visible in the electric vehicle sector, where the country wants domestic companies to establish themselves first by getting the right technology,” he said, adding that duties on some agricultural products should be reduced to pass on the benefits to consumers.
He highlighted that there is industrial concentration with the top five industrial groups capturing a major share of the market. He said that competition in the industrial sector has become less intense due to concentration of industries by large corporates.
“The higher the margins of these domestic tigers, the more they will become the darlings of the stock market,” he added.
Calling for privatisation of public sector banks, insurance companies, power finance companies and PSUs, he said, “Today, a lot of banks are doing asset management, not banking or opening branches. We don’t want such government-owned banks.”
He also said that measures should be initiated to boost consumption in rural areas, as consumption growth in urban India will not support the overall growth of the economy.
On the government’s decision to invest in Vodafone Idea and save it from bankruptcy, he said, “It would have been a better decision to let the telecom company fail and allow new companies to emerge. We should let our companies fall.”
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