What is the issue?
- Union government had made few tariff amendments which are considered to be protectionist in nature.
- Government need to step in to resolve the concerns of the manufacturing sector in this regard.
What are the significant protectionist moves of government?
- Customs duty on luxury/lifestyle goods such as perfumes, silk fabrics, precious stones, imitation jewellery and products related to beauty treatment has been increased.
- Customs duty on raw materials such as crude and refined edible oils, fruit juices and soya preparations has also been increased.
- The customs duties on refractory goods consumed by the domestic iron and steel companies has been increased and it is imperative to weigh the overall impact of this change.
- There is also an increase in customs duty on automobile parts and LCD/LED/OLED.
What is the significance of this moves?
- Rejig in the custom duty structure can be seen as a fine balancing act between fiscal deficit and fiscal prudence and as an overarching design to boost revenues.
- A custom duty increase on luxury goods sector is expected to boost the domestic manufacturing of such goods and to provide an additional source of revenue to the government.
- The duty increase in agro raw materials will give an impetus to the domestic food processing industry and agricultural suppliers to these industries.
- The custom duty increase on raw materials for manufacturing sector seems to boost many domestic sector.
What are the concerns of these move?
- It remains to be seen whether these tariff amendments have a certain degree of permanence or whether they are introduced to achieve short-term goals.
- India’s move on increasing import duties has taken without exploring the manufacturing possibility, since it might not be economically viable for a foreign investor considering the scale of operations.
- It is hoped that importing completely built-up units will not become the preferred option for Indian as well as foreign companies, leading to job losses locally.
- The precipitous overnight increase of rates will merely inflate prices of such goods owing to prohibitive cost of imported materials.
- A spur in construction and infrastructure projects and increased requirements for iron and steel is expected to increase demand of inputs for manufacture of refractories.
- There are concerns about the capability of domestic industry to fulfil the demand for such goods at an adequate pace to substitute imports.
What measures need to be taken?
- The government needs to provide long-term and very competitive export incentives to companiesthat will provide economies of scale.
- At the same time it will be viable for them to set up expensive manufacturing facilities for components such as LCD/LED/OLED panels or auto parts.
- Each category of goods must be looked at independently to assess the impact after duly factoring in all commercial considerations for the industry.
- If the government has a subsequent tariff reduction plan on manufacturing raw materials then such a plan should be promulgated in advance so that the domestic industry can set the right expectations and prepare accordingly.
- For which a consultative approach in decision making involving both domestic and foreign companies is needed.
- Thus government must understands that the “Make in India”campaign can succeed only when a conscious effort is made to customise the policy decisions after duly considering all concerns.
Source: Business Standard
