Hike in Import Duty for Electronics Goods Unlikely

In government’s overdrive to curb the current account deficit from the current 4.8 percent to targeted 3.7 percent for the fiscal year 2013-14, the import of electronic goods had almost became the proverbial sacrificial lamb! However, hard calculation and dissection seem to have prevailed and electronic goods are likely to escape higher import duty as speculated last week.

Saturday, August 17, 2013: The government might finally change its mind on levying higher customs duty on imports of non-essential items like electronic goods, as it proposed to put in place these tariff restrictions to do some dollar savings in order to defend rupee last week. In a series of measures aimed at this, Finance Minister P. Chidambaram had indicated that the imports of non-essential import items such as fridges and TVs could be reduced. The commerce ministry, however, is believed to have factored in with the finance ministry that most electronic goods are covered under Information Technology Agreements (ITAs) with other countries under WTO, and India unilaterally cannot raise the rates. Read full ITA 1996

Currently, India cannot levy import duties on several electronic goods, being a signatory of the Information Technology Agreement under the World Trade Organisation. So, if the import duty has to be raised, it has to be on such goods which are not covered under the agreement.

That leaves the finance minister mainly with consumer durables like television sets, refrigerators and air conditioners, but officials fear that would not have any perceptible impact ion the CAD.

“Most of the electronics items are zero-rated and covered under IT agreements with various countries. So they are automatically exempt. Hike in import duty only on consumer goods like TV and refrigerators would just have a symbolic effect on CAD,” said a commerce ministry official.

On the contrary, the move might invite retaliation from such countries whose exports would be jeopardised due to hiked import duty, added another official.

Earlier this week, the government had raised import duty on gold, platinum and silver to 10 per cent to curb their demand and rein in CAD at 3.7 per cent of the gross domestic product this financial year. The increase would give the exchequer an additional Rs 4,830 crore.

At $31 billion, electronic goods comprised 6.3 per cent of the total imports of $490 billion in 2012-13. Pearls, precious and semi-precious stones were $22 billion or 4.4 per cent of the total imports. Petroleum, gold and machinery comprised 34.4 per cent, 11 per cent and 5.5 per cent of the imports, respectively.

Economic Affairs Secretary Arvind Mayaram also indicated the government would not hike duties on more non-essential items to tame the Current Account Deficit (CAD) as curbs on imports of gold, silver and platinum should serve the purpose.

“As far as imports are concerned, we have said we will curb non-essentials and we have taken measures to do so. Now you will have to live with that for a while,” Mayaram told Agencies on Friday.

Last month Finance Minister P Chidambaram had said the government was looking at some compression in non-oil and non-gold imports, especially of non-essential goods. “There is no rocket science in manufacturing basic electronic hardware. It can be manufactured in states like Rajasthan and Kerala,” he had said.

However, Chidambaram’s concerns were not totally unfounded. A consistent slow down in domestic manufacturing sector has also prompted the government to give a rethink on imposition of customs duty on electronic and other goods, cheap import of which have been flooding Indian markets.

According to estimates, India’s electronic goods import bill is likely to cross Rs. 17000 Billions (17 Lakh Crore) by 2020, exceeding that of crude oil.

A lot of experts had felt right before the budget 2013-14 that raising of import duty on electronic items was needed not only to give boost to the domestic manufacturing, but also to stem the rising current account deficit.

What Next?

Related Articles

Leave a Reply

You must be Logged in to post comment.