Duty breather to induce price cuts

BUDGET & BUSINESS

IMPORT TARIFFS: The peak duty cut is a step towards East Asian countries' rates, which range between 5 and 7.5 per cent.

By reducing the peak customs duty to 10 per cent from 12.5 per cent on non-agricultural products, finance minister P Chidambaram has sought to reduce costs for user industries, level the playing field for transnational companies and rein in inflation.

The effective import duty rate, factoring in the 16 per cent countervailing duty and 4 per cent special additional duty and the education cess, will come down from 36.73 per cent to 33.85 per cent.

"After adding all the additional duties, the customs duty on finished products will come down, which is good news for the user companies," said Heetesh Veera, partner, Ernst and Young.

The finance minister, in his Budget speech, said the peak duty cut was a step towards East Asian countries' rates, which range between 5 and 7.5 per cent.

Lower import duties have been a key issue in multilateral trade negotiations.

"This will certainly help the government at the next round of World Trade Organisation talks," said Manab Majumdar, team leader of WTO, with Federation of Indian Chambers of Commerce & Industry.

Corporate India said the cut in import duties was expected. "I think in order to curtail the rising prices, a cut was expected. We are ready for competition," said Videocon Industries chairman Venugopal Dhoot.

The government has also reduced import duties on various raw materials by 5 per cent to 7 per cent. "This will help Indian companies import raw material at lower cost," said Nihal Kothari, partner, RSM.

With the import duties coming down, analysts said the domestic companies would be forced to reduce prices.

The highest import duties on high-end products like automobiles would continue and there would not be any big impact on prices while importing a car, which attracts 162 per cent duty, though import of auto parts will attract lower duty.

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Ceramic products * Source: Ernst & Young