Impact of duty hike
This refers to “Budget decision on customs duty hike to impact imports of $85 billion in a year” (February 13). A K Bhattacharya has lucidly explained that the hike in customs duties on 40 categories of mass consumption, raw materials, components, consumables, FMCGs etc. will have wide impact. Despite this, imports are not going to be dropped and this abnormal hike (33 per cent to 100 per cent on an average) is going to push the inflation index up locally and some resentment globally, especially China, Thailand, Taiwan and crude edible oil suppliers such as Indonesia and Malaysia. The steep hike may have been aimed at pushing the government’s flagship Make in India initiative to create jobs and also to mop up additional revenue to the tune of ~60 billion, but this cannot happen just by raising customs duties without improving the basic infrastructure to manufacture these goods in India. We are in fact miles behind when it comes to producing indigenously those items against which import duty was hiked in the Budget. For India, it appears that the synonym for protectionism is “make in India” while we oppose protectionism by Western countries in all world forums.
Many are critical of the removal of education cess (2 per cent for primary and 1 per cent for secondary and higher education) and it being replaced by 10 per cent Social Welfare Surcharge on Basic Customs Duty. The Central Board of Indirect Taxes and Customs claims that the overall revenue impact as a result of this rejig is not too big. However, if one goes by this analysis the revenue impact will be higher than what is said. In many bilateral free trade agreements with a number of countries including the less developed countries, basic customs duty is exempted on a large number of items either partially or fully. There is therefore now less levy realisation, unlike the education cess and higher education cess which are imposed on the total CIF (cost, insurance, freight) value plus basic customs duty under normal imports. The analysis should be taken note of and considered by North Block for revisiting the duties or they should be modified suitably to enable local manufacturing to graduate from assembling units to the levels of manufacturing indigenously in a phased manner.
The general rule is that raw materials should attract less duties and finished products must be levied with higher duties. If one goes by customs tariffs schedules, there are several items where import duties on raw materials, components and consumables are far higher than the finished products. The Budget failed to address this issue once again. If this continues, the government should realise that the success of Make in India would remain a dream. A step-by-step approach with adequate timelines should be in place to hike customs levies.
A Sathyanarayana New Delhi