ET View: Budget fails the reform test on import duties

The government’s approach to import duties sees no systematic reform. Some duties have been increased, some duties removed or lowered. Duties have been removed on electronic goods that are not made in India. But suppose someone wants to manufacture in this country a product not manufactured at present. The zero import duty regime would be a deterrent.

But once it is manufactured in India, its import would attract an import duty, would it not? Then, what is the problem? Import duties are notified not by principle, butby the tariff line according to the Internationally Harmonised System of Nomenclature, de-aggregated to the appropriate level. There is nothing automatic about it. It would call for representing to the government, waiting for approval, perhaps doing the things needed to propitiate the approval authority, wasting time and money that should be spent on actual production and its logistics.

This applies to capital goods required for manufacturing electronic products. If, indeed, India does emerge a large manufacturing base for electronic goods, someone would want to set up the production facility for the latest line of capital goods for this growing industry right here in this country. A zero import duty would offer nil protection and facilitate imports.

Those thinking small and of making a fast buck would lobby strongly for zero import duty on their inputs and protection for their output. An enlightened government would encourage long-term thinking and greater ambition, and put in place a regime of low, say 5%, uniform import duties on everything. This would give the same, uniform rate of effective protection to all goods, making for a stable incentive regime and some degree of infant industry protection. Over time, that 5% can gradually be lowered to advanced country levels of around 2%.

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Minimum government, maximum governance? Sorry, not when it comes to a lobbying-driven, pick-and-choose regime of differential import duties.


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