Govt may effect customs hike in budget

During pre-budget discussions with finance minister Yashwant Sinha, trade and industry bodies had demanded hikes in customs and countervailing duties, saying cut in imports duty to an average of 27 per cent by the United Front regime had severely affected domestic industry.

Even China, which began liberalisation process as early as 1979, had not brought down customs duty below 50 per cent. But in India customs duties have come down drastically from around 140 per cent in 1991-92 to an average 27 per cent now.

Such a drastic reduction has madecapital goods as well as other imports cheaper than indigenous machinery and products, they said. Finance ministry sources pointed out that revenues from customs and excise fell by a massive Rs 16,000 crore during 1997-98, of which customs alone accounted for Rs 11,000 crore.

In fact, the Confederation of Indian Industry (CII) has sought tariff protection against cheap imports saying competition was biased against domestic industry in terms of fiscal and other policies. It has called for a hike in customs duty to neutralise the impact of dumping of cheaper goods.

CII president Rajesh Shah had called for an across the board hike in import tariff by imposing an additional 5 per cent duty in the forthcoming budget. The reduction in customs duty in the previous budget had led to large scale dumping especially in steel and fibre intermediates. The argument of the industry is that the domestic industry is at a disadvantage as cheaper imports of various products have affected the prospects of Indian companieswho are already facing demand recession and rise in input costs.

It is learnt that the Finance Ministry is planning to impose duty of 15-18 per cent, comprising customs and countervailing duties (CVD), on project imports.

The budget, to be announced next month, is expected to impose duties across a wider range project imports, ministry sources revealed. Currently the barrier level for project imports is not uniform with duties placed unevenly for imports for different industries.

The domestic capital goods industry has for long been calling for a level field since it pays a host of taxes comprising excise, central sales tax, state sales tax and other state-level taxes like octroi on raw materials. The finance ministry is buying this argument up to a point as it is convinced that domestic industry is getting hurt. It feels that it would be fair if CVD is imposed to the extent of at least the aggregate level of sales tax and octroi.

The capital goods industry has been arguing that the level of negativeprotection is as high as 30 per cent but the ministry feels that this may be inflated by about 10 percentage points. Notwithstanding this, the finance ministry agrees that since the domestic capital goods industry has been affected by project imports the balance needs to be somewhat restored.Projects imports by the petroleum and fertiliser sectors are currently allowed duty-free. The ministry is weighing the option of putting up some barriers for these industries where machinery is manufactured domestically. The domestic industry has argued that most countries protect their home industries against imports by giving them relief from domestic taxes to compete against imports. The government, therefore, cannot adopt a policy of annihilating the Indian capital goods industry.

As projects funded by multilateral agencies give a price preference of about 15 per cent to domestic industry, the ministry feels that the plea from industry cannot be ignored. The ministry feels that when general tariff levels were highdomestic industry got adequate protection but with tariffs reduced to low and zero levels across the board, there is no denying the fact of negative protection in the case of the domestic capital goods industry. The ministry is also of opinion that project suppliers resort to substantial mark-ups for sectors where the duty is zero. This is done as they are aware of cost disadvantages to Indian supplier.