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Union Budget may tweak customs duties, ensure ease of import compliance
The changes will be done to reduce import dependence on manufactured products, protect the environment, and to safeguard the interests of Indian farm sector, and micro, small and medium enterprises.
New Delhi: The Union Budget is likely to bring about fresh changes in Customs duties and procedures with the aim of fulfilling two key objectives, protect and encourage domestic value addition as part of the global supply chain, and have reasonable tariff space for concessions under various free trade agreements (FTAs) currently under negotiation people aware of the matter said.
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The changes will be done to reduce import dependence on manufactured products, protect the environment, and to safeguard the interests of Indian farm sector, and micro, small and medium enterprises (MSMEs), the people added, requesting anonymity.
The government is considering reducing import duties on a range of inputs including raw materials for the manufacturing of steel, aluminium, textiles, jewellery, pharmaceuticals, medical devices, electronic components, telecom network products, electrical vehicles (EVs), and also on liquefied natural gas (LNG) to reduce fuel costs, one of the people said. India is the fourth-largest importer of LNG in the world.
“Duty reductions for several sectors under the Production-Linked Incentive (PLI) scheme are under consideration,” a second person said, adding that the Budget may also expand the list of PLI sectors. The government currently gives incentives worth ₹1.97 lakh crore in key sectors to create significant scale, nurture what it calls global champions, and generate employment.
Addressing the Merchants’ Chamber of Commerce & Industry (MCCI) on January 21, commerce and industry minister, Piyush Goyal, said: “We’ve had a very successful experience on the PLI front particularly in mobile phone manufacturing, and we are hoping to replicate it in other sectors like semiconductors, container manufacturing etc. Fourteen sectors now have PLI schemes.”
Some of the key sectors under the PLI scheme include solar PVs (photo voltaics), white goods, steel, food processing, pharmaceuticals, telecom, textiles, automobile, and auto components.
“There are also proposals to raise the customs duty on certain items to check the cheaper import of products that are manufactured domestically. The government is also negotiating FTAs, and may have to keep differential tariffs for FTA countries and other nations. This may require raising tariffs of some items,” the first person added.
Sectors likely to see a tariff hikes include solar modules, steel and aluminium products and consumer electronics he added.
The Union Budget will be presented by finance minister Nirmala Sitharaman on February 1.
Experts said the FTAs could have an impact on the Customs duty rate and structure.
“There could be some changes and a few general exemptions on the import of capital goods and raw materials considering these FTAs in the pipeline. More importantly, the FTAs would set the decks for further exports of manufactured goods from India,” said Mahesh Jaising, partner at consulting firm Deloitte India.
India is currently working on half-a-dozen FTAs with countries and blocks such as the UAE, the EU, Australia, Canada, Israel and the Gulf Cooperation Council (GCC). Earlier this month, India and the UK formally launched FTA negotiations.
The people cited in the first instance suggested a change in duty on previous metals may be on the cards.
“In order to check smuggling of precious metals such as gold, the government may also further cut customs duty on them,” the second person said. The 2021-22 budget slashed duty on gold and silver from 12.5% to 7.5%.
The government is also considering incentives to boost green hydrogen and launch tax refunds for international tourists (TRT),” he said, adding that the matter may require approval of the Goods and Services Tax (GST) Council. The GST law provides for the TRT scheme, but it is not yet operational.
“Customs duty is one of the major tools to achieve government’s vision for ‘Aatmanirbhar Bharat’ (self-reliant India), hence duty rationalisation along with easing trade-related compliance burdens are expected in the budget,” Nilaya Varma, co-founder and CEO of consultancy firm Primus Partners, said.
“Reduction of duty rates on parts or raw materials which are required for the manufacturing of finished products wherein there doesn’t exist domestic capability to manufacture such parts/raw materials will help in boosting ‘Make in India’ and building a self-reliant India,” Deloitte’s Jaising added.
