Would eliminating trade barriers hurt Indian manufacturers and farmers?

Imagine we run a small toy shop in Mumbai. Chinese toys cost ₹1,000 while Indian-made equivalents cost ₹1,800. Left to the market, our customers buy the cheaper Chinese toy every time, and the Indian toymaker starts going out of business. So, the government steps in and places a 100% import duty on Chinese imported toys. But we start noticing that the number of customers at our store has gone down — because at ₹1,800, the toys are too expensive for the majority of our customers.

This is how a tariff works. It is a tax charged at the border on imported goods, making them more expensive and domestic alternatives more competitive by comparison. The person who benefits from any trade barrier is always the same: the domestic producer whose product is being protected. The person who pays is also always the same: the consumer. In our example, every parent in India who buys a toy pays more so that the Indian toymaker stays in business. That is not a bug but a feature of this mechanism. Import duties work by transferring money from consumers to producers.

But a tariff is just one type of trade barrier. Governments also use quotas — caps on how much of something can be imported at all. Or licensing requirements — rules that say you need government permission before importing. Or Quality Control Orders, known as QCOs, which require imported goods to meet specific Indian standards before they can enter the market. India uses all of these, often in combination. The mechanism differs, but the effect is the same: domestic manufacturers get protected and consumers pay the price.

The widely argued reason for any protection is that our domestic industries are young. They lack the scale, the supply chains, and the decades of learning that foreign competitors have. Open the market immediately and Indian manufacturers will fail before they can grow. This is the infant industry argument, and in theory it sounds reasonable. But the test of whether protection is working is simple: did the industry get more competitive over time? In India, the honest answer is no. 

Take for instance, the Hindustan Ambassador which was shielded from competition for four decades. By the time it was discontinued, it was one of the least competitive cars in the world. Indian consumers had paid a premium for it for a generation — not because it was good, but because nothing better was allowed in. Then 1991 showed us the other side. When India opened its automobile sector to foreign competition, the industry did not collapse — it improved. Today, India’s compact car segment, where competition is fiercest, is among the most competitive in the world. But the luxury cars and electric vehicles segment where import duties stand at 70% and 110% respectively remains globally uncompetitive. 

The same logic applies to agriculture. Tariffs and QCOs on imported edible oils, wheat, and sugar do raise the prices that some farmers receive. But they also raise food costs for every Indian household and in practice the intended benefit rarely reaches the farmer in full, absorbed along the way by traders and processors.

Hence, the honest accounting of any trade barrier requires us to answer two fundamental questions: protection for whom and at whose expense? India has too often answered by protecting producers indefinitely and the cost has been borne silently by hundreds of millions of consumers. But can every trade question reduce to this simple logic? India’s trade with China involves a massive deficit, strategic dependencies, and a neighbor that does not always play by the same rules. Should India treat that as a special case?