Tariff on top 30 items imported from the US between 0-7.5% only: CBIC Chairman Sanjay Kumar Agarwal

This comes as Prime Minister Narendra Modi is expected to discuss trade ties with US President Donald Trump during his visit to America on February 12-13.

Edited Excerpts:

How much of the commentary coming out of the US on India being a high-tariff country played a role in cutting duties in the Budget?

The average Customs rate in India was 11.65 per cent which, after this rationalisation exercise, has come down to 10.66 per cent, so it is not very high.

And if we look at the items imported from the US, the top 30 items include crude oil, LNG, coal, diamonds, and aeroplanes. The duty rates on these are either exempt or very low, at 2.5 per cent, 5 per cent, and 7.5 per cent, so we cannot say that the major imports from the US are subject to high tariffs.

Yes, there are items like motor cars and motorcycles which were earlier subjected to tariff rates of 125 per cent and 100 per cent, respectively. The effective rate was lower; for cars, it was 70 per cent or 110 per cent, depending on engine capacity. For motorcycles, it was 50 per cent. In the case of motorcycles, it was decided that we could bring down the rate for those not produced in India.

Motorcycles above 1,600cc are not produced in India, so the rate has been reduced from 50 per cent to 30 per cent. For motorcycles produced in India, below 1,600cc, the rate has been reduced to a lesser extent, from 50 per cent to 40 per cent. Motor cars have not been touched.

There has been consistent demand for protection from the industry. Is the government convinced that these protections have to go away for India to become part of the global value chain?

In the rate rationalisation exercise, duty rates of 0 per cent, 2.5 per cent, 5 per cent, 7.5 per cent, and 10 per cent have not been changed. In the case of industrial goods, out of 8,500 tariff lines, 6,500 fall within this narrow band. These rates have remained unchanged for nearly two decades, so we did not alter them.

We receive representations from different segments of the manufacturing sector requesting higher import duties on items that they produce. At the same time, we receive requests from their suppliers to raise duties on competing products.

If we keep increasing duty rates, we will become a very high-tariff nation, which will create inefficiencies in the manufacturing sector. Our goal is to integrate into the global value chain. If we maintain high tariffs, it will lead to inefficiencies and we may struggle to compete in the global market and in terms of export. Exporting is essential to earning foreign exchange and maintaining the balance of trade.

Value addition in electronic items remains low. How do you see it changing?

Exemptions in this Budget have been granted for certain sub-parts based on recommendations from the Ministry of Electronics and Information Technology (MeitY). They examined whether these components would be manufactured domestically in the near future and made recommendations accordingly.

However, for higher-value components such as printed circuit board (PCB) assemblies, camera modules, and connectors, which are not yet fully manufactured in India, we need to reduce duties on parts to encourage manufacturers to produce these intermediate components. Some manufacturing is already happening, but if we want more value addition in the country, we must take a staggered approach.

A number of states have raised the issue of lower revenue. The Basic Customs Duty collected, shared by the Centre and states, is decreasing while cess collected by the Centre is increasing in a number of items in this Budget. How do you see it?

Yes, you are right that when the Basic Customs Duty (BCD) rates have been lowered in the rate rationalisation exercise to avoid any major immediate shock to industry, it was decided to impose an equivalent AIDC (Agriculture Infrastructure and Development Cess), which is a cess.

The Centre does not share cesses with the states, whereas BCD is. So, to that extent, the revenue flow to the states will be lower.

However, if we look at the total impact, there will be a revenue loss of Rs 1,900 crore due to shifting some of what was earlier collected as BCD to AIDC. Yes, definitely, there is some shifting, but for individual states, the impact will not be significant, as it is not a massive amount.

Since we had to begin somewhere, it was decided to rationalise the BCD rates and eliminate certain high rates.

When high rates are eliminated, we cannot immediately reduce the effective duty incidence, as that would remove the tariff protection available to a particular sector. So, accordingly, AIDC has been levied. This is a rate rationalisation exercise, and there was never any intention to deprive states of revenue.