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Budget 2023: The government has zeroed in on dozens of products across sectors — including aviation, electronics, steel and industry — for possible customs duty hike in the Budget for FY24 to curb “non-essential imports” and improve local production, official sources told FE. Products such as private jets and helicopters, select consumer electronics products, plastics, certain iron & steel products, jewellery and leather could witness higher duties.
At the same time, the government is also weighing proposals for duty cuts in some cases, especially to ensure smooth imports of raw materials. The commerce ministry has suggested that the import duty on gold and certain other products in the gems and jewellery sector be trimmed to boost exports of finished products.
Also read: Budget 2023: Real estate sector seeks increased tax rebate on housing loan rates, LTCG rationalisation
In the last Budget, the government had raised the import duty on gold to 15% from 10.75%. The “rationalisation” of import duties is also being contemplated to correct the inverted duty structure where raw materials are taxed at a higher rate than the finished goods.
The proposed duty changes are based on the suggestions of various administrative departments to the finance ministry.
The move is a part of the broader government initiative to target “non-essential imports” across sectors in a bid to curb their debilitating impact on trade balance and current account deficit (CAD) and also identify areas where domestic manufacturing needs to be pushed aggressively.
Merchandise trade deficit, the most important driver of the CAD, already hit a record $218.9 billion until December this fiscal, against $136.5 billion a year ago.
As FE had reported earlier, the commerce ministry had asked various departments to identify such products. The exercise is also crucial for the government to identify sectors where more production-linked (PLI) schemes may have to be rolled out to boost local output.
The government has also firmed up standards to control low-grade imports. More quality control orders relating to dozens of products — including sports goods, wooden furniture and potable water bottles — are in the offing. To be sure, the standards apply to both domestic and foreign manufacturers, in sync with fair trade practices.
“Identification of ‘non-essential imports’ doesn’t mean the government will resort to duty hikes on all such products. The idea is to see how local production of these items may be bolstered so that import incidence automatically comes down,” a senior government official had told FE earlier.
The move also comes after the pandemic exposed India’s traditional but uneasy reliance on supply chains from geographies that were not reliable and transparent. This prompted the government to scour for solutions to reduce reliance on such suppliers.
Elevated CAD has proved to be a double whammy for the rupee at a time when the US Federal Reserve has resorted to aggressive policy tightening to control inflation.
The rupee has depreciated by 8.5% over the past one year, although it has still performed better than many others. Moreover, while goods imports are slowing at a slower pace, export prospects have been battered by an economic slowdown in key markets, such as the US, the EU and China. The World Trade Organisation has estimated only 1% growth in global trade volume for 2023, against 3.5% in 2022.
Also read: What is common man expecting from budget 2023; Which areas need to be addressed?
Consequently, analysts have forecast India’s current account deficit to exacerbate to 3-3.5% of GDP in FY23, against 1.2% in the last fiscal, citing elevated trade deficit and weak rupee. Of course, the recent moderation of select commodity prices globally are expected to ease pressure on trade balance for a net importer like India.
Some officials are wary of the persistent fast growth in electronics imports and their impact on the CAD. Official data showed electronics imports jumped 35.3% in FY22 to a record $71.2 billion, having made up almost 17% of the overall merchandise imports. Until November this fiscal, such imports grew almost 15% even on the elevated base to touch $49.5 billion. Within this, consumer electronics imports climbed 43.4% on year to almost $5.2 billion. Thanks to the government push in recent years, including the PLI schemes, electronics exports jumped 55% until November (albeit on a still low base) to $13.8 billion, way above the 12.2% rise in overall merchandise exports.
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