+ Challenges in Import Duty Rationalization - CII Blog

India’s external sector displayed a strong performance in 2020-21. During April-December of 2021, India’s exports stood at around US$ 299.74 billion, bringing India rather close to the export target of US$ 400 by 2022.

Given the propensity of exports to drive growth and create jobs, it is critical to sustain this momentum, especially with new threats such as Omicron and a third wave of the pandemic that have the potential to cause short term supply disruptions. Thus, focus must be on reorienting India’s broader trade policy to bolster Indian exports. The Union Budget 2022-23 can be a productive platform for this.

Due to COVID-induced lockdowns, the global economy has nose-dived. The Indian economy has been robust in its recovery period. While exports have been healthy, yet many orders have been cancelled. Global trade has transformed and is now set to change again.

Government of India has proactively taken steps to help industry in ease of doing business by lowering tax rates and deferring payment of taxes and compliances. Also, high thrust has been given to Make in India, Aatmanirbhar Bharat and Vocal for Local. To curb misuse of concessions under free trade agreements, CAROTAR-20 has been introduced. These measures have certainly been helpful to exporters and manufacturers.

The challenge is to ensure maintaining the required quality at competitive prices for expanding share in the global market.

During the presentation of the last Union Budget, Hon’ble Union Finance Minister had announced that the import tariff structure shall be further simplified and about 400 odd customs exemptions would be withdrawn by October 2021.

Keeping in view the complexity of balancing competitiveness with measures to guard against dumping of cheap products, tweaking import duty is not an easy exercise. A stable tax regime is always desired by the industry for taking long term decisions on investment and costings.  

Therefore, a set of general principles to guide the tariff structure along with a roadmap to encourage and calibrate domestic manufacturing in alignment with global trade trends is required in strengthen India’s manufacturing capacities and boost its export competitiveness.  

A graded roadmap needs to be strategized to shift duty slabs to a competitive level over a period of 3 years, with exception to a few products presently in the higher slabs, accompanied by policy actions to boost domestic manufacturing. Phased manufacturing program together with Production Linked Incentives are a good example which allows domestic manufacturers time to adjust.

It is suggested that duty on imports of final products should be in the standard slab, duty on intermediates should be placed in the lower slab and duty on inputs or raw materials must stand at the lowest or nil slab.

Review of final and intermediate products can be undertaken to ensure that inputs which are not being manufactured in India can be imported at lower duty to increase export competitiveness of final products manufactured in India.

Apart from these, some other measures would help ease processes at the borders.

The window of opportunity for boosting India’s exports at this time of change may not last long as the world economy recovers. Budget 2022-23 should accord a special position to exports from India through a targeted strategy of manufacturing for the world.