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Protectionist Tariff Amendments by India 

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March 15, 2018

What is the issue?

  • Union government had made few tariff amendments which are considered to be protectionist in nature.
  • Government need to step in to resolve the concerns of the manufacturing sector in this regard.

What are the significant protectionist moves of government?

  • Customs duty on luxury/lifestyle goods such as perfumes, silk fabrics, precious stones, imitation jewellery and products related to beauty treatment has been increased.
  • Customs duty on raw materials such as crude and refined edible oils, fruit juices and soya preparations has also been increased.
  • The customs duties on refractory goods consumed by the domestic iron and steel companies has been increased and it is imperative to weigh the overall impact of this change.
  • There is also an increase in customs duty on automobile parts and LCD/LED/OLED.

What is the significance of this moves?

  • Rejig in the custom duty structure can be seen as a fine balancing act between fiscal deficit and fiscal prudence and as an overarching design to boost revenues.
  • A custom duty increase on luxury goods sector is expected to boost the domestic manufacturing of such goods and to provide an additional source of revenue to the government.
  • The duty increase in agro raw materials will give an impetus to the domestic food processing industry and agricultural suppliers to these industries.
  • The custom duty increase on raw materials for manufacturing sector seems to boost many domestic sector.

What are the concerns of these move?

  • It remains to be seen whether these tariff amendments have a certain degree of permanence or whether they are introduced to achieve short-term goals.
  • India’s move on increasing import duties has taken without exploring the manufacturing possibility, since it might not be economically viable for a foreign investor considering the scale of operations.
  • It is hoped that importing completely built-up units will not become the preferred option for Indian as well as foreign companies, leading to job losses locally.
  • The precipitous overnight increase of rates will merely inflate prices of such goods owing to prohibitive cost of imported materials.
  • A spur in construction and infrastructure projects and increased requirements for iron and steel is expected to increase demand of inputs for manufacture of refractories.
  • There are concerns about the capability of domestic industry to fulfil the demand for such goods at an adequate pace to substitute imports.

What measures need to be taken?

  • The government needs to provide long-term and very competitive export incentives to companiesthat will provide economies of scale.
  • At the same time it will be viable for them to set up expensive manufacturing facilities for components such as LCD/LED/OLED panels or auto parts.
  • Each category of goods must be looked at independently to assess the impact after duly factoring in all commercial considerations for the industry.
  • If the government has a subsequent tariff reduction plan on manufacturing raw materials then such a plan should be promulgated in advance so that the domestic industry can set the right expectations and prepare accordingly.
  • For which a consultative approach in decision making involving both domestic and foreign companies is needed.
  • Thus government must understands that the “Make in India”campaign can succeed only when a conscious effort is made to customise the policy decisions after duly considering all concerns.

 

Source: Business Standard

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