.9.

Ptoducts, **significant and** relatively modest **in** Synthetic Yarns<sup>(17-26%),</sup><sup>**and**</sup> **qulte** large (37-47%) **in** Miscellaneous Lrdustries (paper,<sup>tyres, plastlc-made</sup> products). Shortf-ll of EPR relatlve to CEPRs are also negllglble for Electronics (7-9%), signLficant ln Food industries (22-35%), qulte large ln llght chemicals (34-48%), and very large in Engineering industries<sup>(45-60%). These</sup> results are recapitulated below:

**Table 4:** Caep aatory **ond** Actual Effective Protection **by** SuCsctor /I

|LAU=e|**Smotampl**<br>Shero eX|**e**<br>VAi<br>_lLa Lm3|Factorv /|CEPR<br>(X)<br>/h|<br>ActuaL<br>EPPMX|**S**Projects(X)in<br>E^tls/Sihortfall|
|---|---|---|---|---|---|---|
|**4eavy**<br>Chemicals|**17**|20|1.40**1.53**|28 45|**37**|60/40|
|<br>LightChemicals|5|3|**1.33-1.57**|28-42|***6**|**0/100**|
|<br>Synthetic<br>Yarns|7|iS|**1.56-1.66**|**"-53**|70|**50/S0**|
|Basic**Steel**Product|s 12|**7**|**1.49-1.60**|**37-50**|**60**|57/43|
|Electronics|**17**|**11**|**1.27-1.40**|**14-16**|7|_60/40_|
|<br>OtherEngirering|26|25|1.43-1.61|34-49|-11|0/100|
|FoodIndustriS|;|6|1.41-1.50|30-43|a|50/50|
|"iscetten<br>o1us|9|13|1.43-1.52|30-40|77|80/20|
|OveraLl|100|100|1.40-1.55|31-39|30|42/SS|

/ CEPRs **nd** Actual EPQs in this **table are averges** weighted bV VAi. ig The lower (resp. higher) **value** of the indicated rane correspords to yl (:esp. y2). **Source:** Annex **_V_** 21. The ad-hocism and inadequacy of the structure of Effective<sup>Protection,</sup> evidenced by the large inter-sectoral variations in the discrepancy between actu al and compensatory EPRs, is further illustrated by the<sup>intra-sectoral</sup> discre?ancies within each subsector. Only in llrht chemicals and engineering Jidustries subsectors, all the sample projects are s'bject to the same discrepancy (shortfall of EPR), as indicated by the iast column<sup>of Table 4. In</sup> practically each o,ther subsector, the projects are distributed in approximately equal shares between those benefitting from excess EPR and those<sup>subject to EPR</sup> shortfall. The level of Effective Protection, therefore, is markedly uneven not only between subsectors but also within each subsector, and<sup>provides thus very</sup> heterogeneouis incentives. These various measures and indications clearly reflect that fine-tuning the structure of prote^tion via a multiplicity<sup>of ad-hoc</sup> protection rates, as India has attempted it, is counterproductive and practically impossible.

# Impact of InRuts and Investment .osts on ComRetLtiveness and Nominal irotection

22. India's proLection regime and tariffs impact on the production<sup>costs and</sup> competitiveness of industry in various ways. There<sup>are two mechanisms witha</sup> direct impact. Firstly, the capital goods taxations affects<sup>Value Added, as</sup> analyzed in the previous section. Secondly, the higher prlces<sup>of industritl</sup> intermediates and inputs are generally passed on into<sup>the final prlce of the</sup> output. The respective impact of these two factors on the prodtuction cost and the price of the output depends essentially on the Value<sup>Added content of the</sup> projects. It is shown (Annex III) that, again in order to<sup>maintain a return on</sup> financial investment similar to the return available under<sup>a free-trade regime,</sup> the project output requires a Compensatory Nominal Protection<sup>Rate (CNPR) at</sup> least equal to: