Some cracks filled, the wall stays

BUDGET & GOVERNMENT

CUSTOMS: Peak rate remains at 10% to protect the Re-hit industry; a few anomalies removed.

Breaking a three-year trend, Finance Minister P Chidambaram kept the peak Customs duty for non-agricultural products unchanged at 10 per cent, a key demand of the domestic industry, which has been facing the brunt of the rupee appreciation.

"The collection rate is the closest approximation to the level of protection to domestic industry, and that rate for all imports stood at 10 per cent in 2006-07. Since April 2007, the rupee has appreciated against the dollar by 9.8 per cent. Consequently, the case for reducing the peak rate at this stage is very weak," Chidambaram said in his Budget speech.

The government had set a target to bring down the peak Customs duty on non-agricultural products to around 5 per cent by 2010.

However, Chidambaram reduced the Customs duty on some items to "provide a fillip to that industry or to promote value addition or to remove inversion or any other anomaly".

Trade policy experts said the move could have a positive impact on the country's trade relations.

"India will have greater bargaining power in negotiations for various free trade agreements. Thus, on non-tariff issues like trade rules, Indian negotiators can ask for more concessions," said Ram Upendra Das, fellow, Research and Information System for Developing Countries.

The commerce ministry had asked the finance ministry not to reduce the peak Customs duty on all non-agricultural products, but to reduce it on certain items to address the issue of inverted duties (when raw materials attract more duties than finished products).

"This reduction of Customs duties will have a positive impact on export-oriented industries in gems and jewellery as well as sports goods sectors," said Ajay Sahai, director general, Federation of Indian Export Organisations.

As imports are expected to remain buoyant, Customs collections for 2008-09 have been fixed at Rs 1,18,930 crore, up 18 per cent from the current fiscal's revised estimate of Rs 1,00,766 crore.

Moreover, the revised estimate of Customs collections for the current financial year is 2 per cent higher than the Budget estimate of Rs 98,770 crore.

There has been a continuous annual reduction in Customs duties since 2004-05 when they were reduced from 20 per cent to 15 per cent. In 2005-06, Chidambaram cut the peak Customs duty on non-agricultural products from 15 per cent to 12.5 per cent and to the current level of 10 per cent in 2006-07.

Chidambaram proposed to do away with import duties on steel melting and aluminium scrap, some components of set-top boxes, specified raw materials used by the IT/electronic hardware industry and the sports goods sector, bactofuges used by the dairy industry, and helicopter simulators.

The items on which Customs duty has been reduced to 5 per cent include specified life-saving drugs and bulk drugs used to make such drugs, phosphoric acid for use as poultry- and cattle-feed ingredient, IT-convergence products, certain machinery used by the sports goods sector, gems and jewellery inputs like rough cubic zirconia, polished cubic, and rough coral.

Chidambaram did away with the 4 per cent additional Customs duty exemption enjoyed by power generation projects (other than mega power projects), transmission, sub-transmission and distribution projects, as well as goods for high-voltage transmission projects. Customs duty exemption on naptha for manufacture of some polymers has also been withdrawn.