NEW DELHI: The Central government plans to raise customs duties on finished products, while reducing them on raw materials except in cases where domestic raw material production is being held back by a flood of cheap imports.
Top government officials said that their duty line-up for the forthcoming Budget will continue “to follow the principle of rationalisation”, which has proved to be successful for mobile production in other areas such as consumer electronics, defence products, pharmaceuticals and specialised steels and alloys.
An earlier move to raise customs duty on mobile handsets to 20 per cent while keeping duties on inputs at lower levels has worked, say officials. For instance, the size of smartphone imports nearly halved from $2.6 billion in 2017-18 to $1.2 billion in 2018-19.
“We want to replicate that in television and other electronic gizmo manufacturing, with a similar duty structure that raises the tax on finished and knocked down products while allowing global value chains to ship parts needed for manufacture. India is too big a market to depend on just imports for mass products,” said an official.
India’s import bill stood at $514 billion in 2018-19 while its trade deficit, or the gap between exports and imports, stood at $154 billion for the year gone by.
“One of the reasons why we did not sign the RCEP was that we feared a surge in imports,” the official said. They pointed out that in the last 10 years, some 11 free trade pacts were signed by India; but this seems to have helped India’s trade partners more than India as the surge in imports have been far higher than increase in exports.
India has seen a surge in import of certain raw materials despite having adequate production capacity for those materials.
Officials cite the case of Zinc, where despite India having adequate capacity at home, the country imported some 1.75 lakh tonnes, with some 1.25 lakh tonnes coming from one single country with which India has a free trade agreement. Similarly, more than a million tonnes of aluminium scrap was imported despite India having excess capacity for producing prime aluminium.
“We have to raise duties on such products for two reasons: one, to protect domestic jobs and two, because quality is being compromised,” pointed out an official.
Domestic market ignored
In the last 10 years, India has seen a surge in import of certain raw materials despite having adequate production capacity back home. Even while the country had adequate capacity here, it imported 1.75 lakh tonnes of Zinc, with some 1.25 lakh tonnes coming from a single country.