Customs duty rejig, easier import compliance among likely budget steps

The Union budget may further overhaul customs duties and procedures with the twin objectives of protecting and encouraging domestic value addition as part of the global supply chain and having reasonable tariff space to offer concessions under free trade agreements (FTAs) currently under negotiation, people aware of the development said.

The tweaking will be done to reduce import dependence on manufactured products and to safeguard the interests of Indian farm sector, environment, and micro, small, and medium enterprises (MSMEs), the people said requesting anonymity.

The government is considering reduction of import duties on a range of inputs, including raw material for manufacturing steel, aluminium, textiles, jewellery, pharmaceuticals, medical devices, electronic components, telecom network products, and electric vehicles (EVs), along with imported energy such as liquefied natural gas (LNG) to reduce fuel cost, one of them said. India is the fourth largest importer of LNG.

“Duty reductions for several sectors under the production-linked incentive (PLI) scheme are under consideration,” a second person said. The budget may also expand the list of PLI sectors, the person said. The government gives incentives worth ₹1.97 trillion to create significant scale in key sectors, nurture global champions, and generate employment.

“We’ve had a very successful experience on the PLI front, particularly in mobile phone manufacturing, and we are hoping to replicate it in other sectors such as semiconductors and container manufacturing. As many as 14 sectors now have PLI schemes.” commerce and industry minister Piyush Goyal told the Merchants’ Chamber of Commerce & Industry (MCCI) on 21 January. Sectors under the PLI scheme include solar PVs, white goods, steel, pharmaceuticals, telecom, textiles, automobiles, and auto components.

“There are also proposals to raise customs duty on certain items to check cheap imports of products (that are also) manufactured domestically. Besides, the government is negotiating FTAs and may have to keep differential tariffs for FTA countries and other nations. This may require raising tariffs of some items,” the first person mentioned above said. Sectors likely to see tariff hikes include solar modules, steel, and aluminium products, and consumer electronics.

“There could be some changes in a few general exemptions on import of capital goods and raw materials considering these FTAs (that are) in the pipeline. More importantly, the FTAs would clear the decks for further exports of manufactured goods from India,” said Mahesh Jaising, partner at consulting firm Deloitte India.

India is working on half-a-dozen FTAs with countries and blocks such as the UAE, the EU, Australia, Israel and the Gulf Cooperation Council. Earlier this month, India and the UK formally launched FTA negotiations.