Govt may hike tariff on imports that escaped higher duties last year

Move ordered by Commerce Minister Piyush Goyal, is aimed at boosting domestic manufacturing

From relatively big ticket items such as air conditioners and colour television sets, to set top boxes, cashews, vehicle tyres and organic chemicals, the government is looking to pile on tariffs on all imports that escaped higher duties last year. 

India’s overall import bill was $514 billion in 2018-19, up 11 per cent from the previous year. 

As fears of runaway imports plagued policymakers last year, duties on inbound goods were raised as many as six times. This was followed by a duty hike imposed on 29 primarily high-value agricultural imports from the US earlier this year.

The latest move has been ordered by Commerce Minister Piyush Goyal to give a boost to domestic manufacturing, sources said. But officials maintain that gamut of trade remains relatively small for many items such as cashews, set top boxes, vehicle tyres. On the other hand, further restrictions on imports may further stifle industrial demand at a time when domestic industry lacks the capital to ramp up manufacturing, an official said.

This is in line with prevailing fears throughout 2019 about falling imports, which contracted in October by the highest margin in FY20. Imports shrank by 16.4 per cent in October, higher than September’s 13.85 per cent contraction. Inbound goods have contracted for the previous five consecutive months, showing low demand for both consumer and industrial items — a hallmark of slowdown. India imported $306 billion worth of goods during the April-October period, 8.37 per cent lower than imports in the corresponding period of the last year.

Electronics debate

However, restrictions on high value import products like consumer electronics have been a demand by domestic manufacturers for a long time.

Case in point, the Consumer Electronics and Appliances Manufacturers Association (CEAMA) had on multiple occasions urged the government to raise customs duties on imported finished goods while lowering the same on components in order to promote domestic manufacturing. They had held responsible India's current free trade arrangements for making the imports of completely built models of consumer durables cheaper than their components.

In the electronics sector, New Delhi has aggresively implemented the phased manufacturing program which pushes for large-scale domestic manufacturing of consumer goods like mobile phones, televisions and computer hardware. This is done through a combination of incentives for domestic manufacturing and progressively higher duties on imported goods. 

After crude oil and gold and jewellery, electronics constitute the third-largest import category, totalling $52 billion in 2018-19. A significant chunk of inbound shipments worth $28 billion originated from China and Hong Kong.

Proposed higher taxes on televisions and air conditioners is the latest measure by which India hopes to reduce its dependence on China, with which it currently has a $53.5 billion trade deficit, a senior official said.

Up and up

For other items like toys, the country lacks a fixed definition to categorize all imports in the category, sources said. 

The latest move is a departure from the High Level Advisory Group’s (HLAG) suggestion of progressively reducing tariff rates to take advantage of the ongoing global trade war between the United States and China.

“The so-called nuisance tariffs (up to 2-3 per cent), which serve little purpose, should be reduced to zero over a three-year period,” the HLAG had said. 

However, sources now say the government is not inclined to follow the group’s suggestion of going for a broad reduction of customs duties over a five-year period.