Analysing the Relationship Between Trade Tariffs, Import Substitution, and Price Volatility: An Empirical Study of India’s Consumer Goods Sector (2010–2021)

Abstract

The past decade has witnessed a reconfiguration of international trade patterns marked by rising protectionism, regional trade wars, and economic nationalism. India’s consumer goods sector, which has long been heavily reliant on imports for intermediate and finished goods, offers a compelling ground to explore the empirical consequences of shifting tariff policies. This study investigates the impact of trade tariffs on the extent of import substitution and subsequent price volatility in India’s consumer goods market over the period 2010–2021. Employing a quantitative research design, the study utilises secondary data drawn from sources such as the Ministry of Commerce, World Integrated Trade Solution (WITS), the Reserve Bank of India, and the Consumer Price Index data from the Ministry of Statistics and Programme Implementation (MoSPI). By analysing trends in tariffs, import volumes, and retail prices across key product categories—including electronics, processed food, and apparel—the study employs panel regression and correlation models to explore linkages and causality. Findings suggest a positive but weak correlation between tariff increases and reduced import volumes, pointing to limited short-term import substitution. However, the analysis reveals a more pronounced effect on consumer prices, particularly in segments lacking strong domestic manufacturing alternatives. The paper concludes that while tariff barriers can marginally curb imports, they also carry inflationary consequences when not supported by adequate domestic supply-side capabilities.