FROM ALMONDS and apples to cellphone parts and solar panels, there have been nearly a dozen instances of hikes in customs duty covering over 400 items during the last 24 months, marking a “calibrated departure” from the underlying policy of reducing import duty that was consistently followed by successive governments over the last two decades.
The increase in duties across both agricultural items and manufactured products is also in contravention with a proposal debated by the government’s policy think-tank Niti Aayog in the run-up to last year’s Budget to effectively bring tariffs down in line with corresponding duties in the ASEAN bloc.
Prior to the large-scale hikes, India’s peak customs duty — the highest of the normal rates — on non-agriculture products had come down steeply from 150 per cent in 1991-92 to 40 per cent in 1997-98 and subsequently, to 20 per cent in 2004-05 and 10 per cent in 2007-08.
The Union Ministry of Commerce has consistently denied these duty increases as “protectionist” in nature. But analysts caution that customs duty hike proposed on 29 US products on June 20 this year on items including almonds, apples and phosphoric acid worth $10.6 billion, which was to be effective from August 4 but has since been postponed by 45 days, could effectively cross the WTO-mandated “bound rates”.
Bound rates are the customs duty rates committed by a country to all other members under the most favoured nation principle and breaching these rates could effectively put a country at risk of being branded as “protectionist” as per the WTO norms, which prohibit discrimination by use of tariffs by its 164 members.
Some of the tariff hikes initiated over the last two years, incidentally, have come despite protests from the industry and even within sections of the government itself.
For instance, the withdrawal of concessional customs duties on 76 specified drugs in January 2016 had to be partly withdrawn as the Ministry of Health and Family Welfare cited an adverse impact of the move on the prices and availability of these drugs. The concession of customs duties on three drugs – Octreotide, Somatropin, and Anti-Haemophilic factor concentrate VIII & IX — were subsequently restored through another notification on February 17, 2016.
The implementation of the duty hike on solar panels from September 2017 was opposed by both the New and Renewable Energy Ministry and solar project developers.
The withdrawal of the exemption from basic customs duty on cashew nuts in shell in the Budget 2016-17 resulted in representations from various trade and industry associations such as the Andhra Pradesh Cashew Manufacturers Association, the Karnataka Cashew Manufacturers Association, Kerala Cashew Processors and Exporters Association, the Cashew Factory Owners Development Association of Tamil Nadu and the Cashew Export Council of India. They sought a withdrawal of the imposition of the duty of 5 per cent on cashew nuts in shell.
There seems to have been a decisive shift in the policies on customs duties from the middle of 2017. In fact, at the Niti Aayog pre-Budget meeting on December 28, 2016, that was attended by Prime Minister Narendra Modi, a proposal to further harmonise the peak customs duty at 7 per cent was discussed, with the aim of both bringing the import tariffs in line with ASEAN duties and addressing the issue of “duty inversion” — when the tariffs on finished goods are lower than that on components and raw materials — that hurts domestic manufacturing.
Officials that The Indian Express spoke to conceded that there was a considered shift in the tariff responses subsequent to this meeting “in line with new global realities”.
Analysts predict that breaching the WTO-bound rates could have serious repercussions. The WTO requires member countries to notify bound tariffs on products as per the commitments resulting from negotiations. Country-wise bound tariff commitments are listed in the documents called the Schedule of Commitments and are an integral part of the WTO Agreement.
WTO member countries have the flexibility to increase or decrease their tariffs so long as they do not raise them above their bound levels. If one WTO member raises applied tariffs above their bound level, other WTO members can take the country to the WTO’s dispute settlement for resolving the issue.
An official in the Ministry of Commerce and Industry said that negotiations are currently underway between India and the US on the issue of tariffs and that India would “stay compliant with all its commitments under the WTO”.
Officials also pointed out that alongside hiking duties, India has also reduced import duties on some items. These include a cut in the import duties on palm oil with effect from September 23, 2016, from 12.5 per cent to 7.5 per cent for crude palm oil of edible grade, and from 20 per cent to 15 per cent for refined palm oil of edible grade. Import duty on wheat was reduced from 10 per cent to Nil with effect from December 8, 2016, but this was subsequently increased to 10 per cent in a little over three months.
Customs duty hikes:
Jan 2016: Concessional customs duties on 76 specified drugs withdrawn “to eliminate the disadvantage to the domestic manufacturers of such drugs”. With the Ministry of Health and Family Welfare citing an adverse impact of the move, the concession of customs duties on 3 drugs was restored through another notification on February 17, 2016.
Feb 2016: In the Budget 2016-17, exemption from basic customs duty on cashew nuts in shell was withdrawn and a basic customs duty of 5% was imposed, with effect from March 1, 2016. Representations were made by various trade and industry associations against the move.
June 2017: Notification issued to slap basic customs duty on smartphones of 10 per cent effective from July 1, making imported devices more expensive than locally made ones. Covered cellular mobile phones and specified parts like charger, battery, wire headset, microphone and receiver, keypad, USB cable, etc.
Sept 2017: Duty on solar panels proposed in September 2016, under which solar panels and modules generating power classified alongside “electrical motors and generators” under the Customs Act, thereby attracting a 7.5 per cent duty. They were earlier listed with “diodes, transistors and similar semiconductor devices, photosensitive semiconductor devices, including photovoltaic cells, whether or not assembled in modules or made up into panels,” where imports were duty free. The implementation of this levy began a year later in September 2017 at some ports.
Dec 2017: Notification issued to raise customs duty on imported mobile phones, television sets, digital cameras, microwave ovens, LED bulbs and a number of other electronics goods. The duty on push-button phones and mobile handsets was raised to 15 per cent from 10 per cent and that on TV sets to 20 per cent from 15 per cent.
Feb 28, 2018: Hike on customs duties across 46 items spanning imported branded goods and those involving technological value-addition — duties were mostly raised from the 10 per cent bracket to 15 per cent and 20 per cent, with one segment seeing a five-fold increase in duty to 50 per cent. Items ranged from fruit juices to mobile phones.
May 24, 2018: The government raised import duties up to 100 per cent on five products, including wheat, shelled almond, walnut, and protein concentrate, imported from the US and other developed nations. The Finance Ministry invoked “emergency powers” to increase import duties under Section 8A of the Customs Act.
June 20, 2018: Customs duty hiked on 29 US products, including almonds, apples and phosphoric acid worth $10.6 billion imports in retaliation to the steel and aluminium tariff hikes by the US. The import duty hike, which was to be effective from August 4, has subsequently been postponed by 45 days.
Aug 2018: Customs duties on 328 textiles products more that doubled to 20 per cent. Covers imported innerwear, baby garments, track suits, carpets, woollen items and shawls.