Tariff hikes: ‘Import duties raised due to BoP issue, not revenue’

The government on Wednesday increased customs duty on total 19 categories of “non-essential items” such as washing machines, refrigerators, radial tyres, and ATF that saw an import of around Rs 86,000 crore in 2017-18.

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The Finance Ministry on Wednesday had said that the changes aim at narrowing the current account deficit.

Maintaining balance of payments rather than revenue considerations was the primary reason for the government’s decision to hike import duty on 19 categories of items, a senior finance ministry official said on Thursday. “We have to look at every small measure to conserve the balance of payments. This is only one step in that direction…revenue is never a consideration for import duty (changes), trade balance is,” the official said.

The government does not expect the import duty hike on these items to impact prices as the list has been decided after much scrutiny to include items that have enough production capacity within the country, the official said. When asked if there will be duty hikes for more items in future, the official said he would refrain from making a prediction.

With the recent round of import duty hike, the government estimates to raise around Rs 3,000-3,500 crore. Regarding the duty hike on aviation turbine fuel (ATF) and its subsequent impact on the aviation sector, the official said prices should not go up much as it is only a miniscule part of total cost and that India has enough production capacity for ATF and need not rely on imports.

The official said the government’s focus is on boosting exports and reducing fuel consumption in the long term. The government is not worried about anything given that the country is “full of resources and has got systems in place”, the official added.

The government on Wednesday increased customs duty on total 19 categories of “non-essential items” such as washing machines, refrigerators, radial tyres, and ATF that saw an import of around Rs 86,000 crore in 2017-18. While the Centre said it had taken the decision to hike tariffs “to curb import of certain imported items” and that these changes aim at narrowing the current account deficit (CAD), analysts are of the view that the move is unlikely to have any significant impact on curtailing the size of the CAD in 2018-19. For instance, in 2017-18, ATF imports were 0.03 per cent of total imports in value terms (in US dollar). Import of washing machines of less than 10 kg and radial tyres are other categories where volumes are limited.

The Finance Ministry on Wednesday had said that the changes aim at narrowing the current account deficit. India’s CAD had widened to a four-quarter high at 2.4 per cent of GDP in April-June from 1.9 per cent in January-March quarter.