Home / Industry / Manufacturing /  Customs duty raised in Budget 2018 to promote Make in India campaign

New Delhi: Finance minister Arun Jaitley’s budget for 2018-19 proposed an increase in customs duty on a range of products—from fruit juice to mobile phones—to incentivize domestic value addition and boost the government’s Make in India programme.

“I propose to increase customs duty on mobile phones from 15% to 20%, on some of their parts and accessories to 15% and on certain parts of TVs to 15%. This measure will promote creation of more jobs in the country," the finance minister said in his budget speech on Thursday.

Customs duties have been significantly raised in more than 10 sectors to discourage imports, mostly from China and other Asian countries. “Jaitley has put his thrust on ‘Make in India’ and proposed to increase customs duty rate on various products such as completely knocked down or semi-knocked down imports of commercial and passenger vehicles, mobile phones, watches, oils of crude and edible grade, fruit juices, perfumes and toiletry preparations, footwear, imitation jewellery, among others to incentivise domestic manufacturers," said Abhishek Singhania of consulting firm PwC.

Apart from increasing customs duty on various products, Jaitley also pumped up cess. “The biggest surprise of budget is the abolishment of Education Cess and Secondary and Higher Education Cess on imported goods and in its place imposition of Social Welfare Surcharge which would have additional impact of 7% to be levied on aggregate duties of customs on import of goods (increased from earlier 3% to 10%) across the sector except petrol, diesel, silver, gold and mobile phones, including sectors where cess was not leviable earlier," Singhania said.

The hike in customs duty on imported mobile phones to 20% will result in an increase in prices of handsets made by companies such as Apple Inc and Google by around 4%, according to industry experts. According to Pankaj Mohindroo, president of the Indian Cellular Association, about 81% of mobile phones sold in India are made locally.

However, consumer durables and appliances makers are happy. “The industry welcomes the budget, particularly the push for local manufacturing of mobile phones and consumer electronics by increasing customs duty on imported products and components, a move that is consistent with the government’s Make-in-India initiative," said Manish Sharma, president and chief executive of Panasonic India and South-Asia, also president of the Consumer Electronics and Appliances Makers Association.

Kamal Nandi, business head and EVP, Godrej Appliances, said raising the minimum support price to 1.5 times the cost of farm produce would help increase the income available for discretionary spends and hence boost demand for consumer durables. “We expect a spur in demand particularly from the states that are majorly dependent on agriculture like Punjab, Haryana, Bihar, Maharashtra etc," Nandi added.

Luxury passenger vehicles will become dearer as the customs duty on import of completely knocked down (CKD) versions of large passenger vehicles and commercial vehicles has been increased to 15% from the existing 10%. The same duty rates will apply on imports of radial tyres for bus and truck. The customs duty rate on the import of completely built units (CBU) of large passenger and commercial vehicles has been increased to 25% from the existing 20%.

The customs duty on certain components like engines, transmission, brakes and other parts has been increased to 15% from 7.5%. The customs duty on lithium ion batteries, used in electric and hybrid vehicles, has been raised from 10% to 20%.

“The component sector is delighted that the duty on select items such as engine, transmission parts, brakes and parts thereof, suspension and parts thereof, gear boxes and parts thereof, airbags etc. have been enhanced from 7.5/10% to 15%. These items account for more than 50% of the $43.5 billion domestic component industry’s turnover and over 30% of its $11 billion exports," said Nirmal Minda, president Automotive Component Manufacturers Association (ACMA).

In the food processing industry, customs duty has jumped five times to 50% for cranberry juice, while the duty on orange juice has been raised to 35% from 30% earlier. Duty on all other fruit and vegetable juices is now at 50%, up from 30% earlier.

While customs duty on watches (wrist watches, smart watches and wearable devices), sunglasses and footwear has gone up to 20% from the current 10%, diamond jewellery and gemstones have seen a hike to 5% from 2.5%.

The customs duty on footwear parts has been increased from 10% to 15%, while that on imitation jewellery has been raised by 5% to 20%.

The impact of these changes, however, will not be dramatic. “If we look at the domestic market for imported footwear and wearable devices, it is negligible. The bulk of the footwear market still resides in the retail price below Rs500. Similarly, the watches market is more on the luxury end than on the masses; the buyers have enough money to spend on the products. The hike in prices won’t make much of a difference, but will help increase the domestic production," said Arvind Singhal, chairman at consulting firm Technopak Advisors Pvt. Ltd.

Govind Shrikhande, managing director, Shoppers Stop Ltd, however believes that the increase in customs duty on perfumes, toiletries, sunglasses and footwear by almost 10% will have a significant impact on prices, directly driving inflation and impacting consumption.

Malyaban Ghosh, Harveen Ahluwalia and Soumya Gupta contributed to this story.

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