Union government had made few tariff amendments which are considered to be protectionist in nature.
Government need to step in to resolve the concerns of the manufacturing sector in this regard.
What are the significant protectionist moves of government?
Customs duty on luxury/lifestyle goods such as perfumes, silk fabrics, precious stones, imitation jewellery and products related to beauty treatment has been increased.
Customs duty on raw materials such as crude and refined edible oils, fruit juices and soya preparations has also been increased.
The customs duties on refractory goods consumed by the domestic iron and steel companies has been increased and it is imperative to weigh the overall impact of this change.
There is also an increase in customs duty on automobile parts and LCD/LED/OLED.
What is the significance of this moves?
Rejig in the custom duty structure can be seen as a fine balancing act between fiscal deficit and fiscal prudence and as an overarching design to boost revenues.
A custom duty increase on luxury goods sector is expected to boost the domestic manufacturing of such goods and to provide an additional source of revenue to the government.
The duty increase in agro raw materials will give an impetus to the domestic food processing industry and agricultural suppliers to these industries.
The custom duty increase on raw materials for manufacturing sector seems to boost many domestic sector.
What are the concerns of these move?
It remains to be seen whether these tariff amendments have a certain degree of permanence or whether they are introduced to achieve short-term goals.
India’s move on increasing import duties has taken without exploring the manufacturing possibility, since it might not be economically viable for a foreign investor considering the scale of operations.
It is hoped that importing completely built-up units will not become the preferred option for Indian as well as foreign companies, leading to job losses locally.
The precipitous overnight increase of rates will merely inflate prices of such goods owing to prohibitive cost of imported materials.
A spur in construction and infrastructure projects and increased requirements for iron and steel is expected to increase demand of inputs for manufacture of refractories.
There are concerns about the capability of domestic industry to fulfil the demand for such goods at an adequate pace to substitute imports.
What measures need to be taken?
The government needs to provide long-term and very competitive export incentives to companiesthat will provide economies of scale.
At the same time it will be viable for them to set up expensive manufacturing facilities for components such as LCD/LED/OLED panels or auto parts.
Each category of goods must be looked at independently to assess the impact after duly factoring in all commercial considerations for the industry.
If the government has a subsequent tariff reduction plan on manufacturing raw materials then such a plan should be promulgated in advance so that the domestic industry can set the right expectations and prepare accordingly.
For which a consultative approach in decision making involving both domestic and foreign companies is needed.
Thus government must understands that the “Make in India”campaign can succeed only when a conscious effort is made to customise the policy decisions after duly considering all concerns.
