The distinct sign of revival in the manufacturing sector coupled with a pick-up in exports prepares the ground for the Centre to resume the task of lowering the peak customs duty that began in 1991 and got stalled in 2006-07. The wall of import tariffs is generally seen as protecting domestic producers, but has the effect, in the long run, of keeping industry housebound as small players incapable of dominating the world stage. A reduction in the peak import duty from 10% to 7.5% will raise the quality of domestic produce, make our products more competitive and help exporters compete in the international market. It would also help attract foreign direct investment (FDI) in manufacturing. The eventual goal should be a uniform import duty on raw materials, intermediates and final products, so as to provide the same effective rate of protection to all lines of value addition. A phased increase in the basic customs duty of exempted goods will ensure that user industries are not hurt while achieving this goal.
The customs duty structure was unchanged this budget due to the worrisome global scenario after the sub-prime lending mess. But industry appears to be divided over the issue of a duty cut. The Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry have said that a cut in peak import duty would be counter-productive as a surge in imports from countries lending extra-ordinary support to their domestic industry could mar recovery prospects here. But Assocham wants the government to keep up with its commitment to lower the peak import duty to Asean levels. A reduction in the high rate of customs tariff has been the mantra for policy reforms since the early nineties, with peak duty being progressively lowered to 10% from 150%. The government must continue with customs duty as a market oriented trade policy regime is reckoned to help absorb external and internal shocks better. At the same time, it must ensure that the rupee does not get overvalued by capital inflows that the system cannot absorb. If this happens, a tax on capital flows may be the way out to curb hot money inflows.
Source : The Economic Times