Viewpoint | Budget 2020

Budget 2020 | Changes in Customs duty renew focus on domestic business

M.S. Mani, Senior Director, Deloitte India.

M.S. Mani, Senior Director, Deloitte India.  

Rate changes can lead to a significant shift in favour of make in India over imports

The changes proposed on the Customs duty front indicate that there is going to be a renewed focus on promoting and protecting domestic business. The focus on protecting and promoting domestic businesses is brought out in various ways such as tariff increases, abolition of exemptions, provisions relating to safeguards and anti-dumping duties, regulating Free Trade Agreement (FTA) imports, etc.

There have been quite a few increases in the Customs duty rates that we have seen in this Budget, including several items on which the earlier lower rates or exemptions have been removed. This includes items such as vegetable fats and oils, butter, cheese, molasses, footwear, furniture, etc.

Interesting list

Many of these items are made by the MSME (Micro, Small and Medium Enterprises) sector, which has been finding it difficult to handle the recent slowdown in the economy. The list of items on which there has been an increase in the Customs duty rates is interesting as many of the items are those where there are sufficient domestic players, especially in the SME space, who manufacture these products. The introduction of the Health Cess on certain items such as medical equipment could also lead to more domestic manufacturing.

The comparative dynamics in terms of make in India or import into India would undergo a significant shift in favour of make in India on account of these rate changes. There is also an overall movement in respect of various products where the Customs duty rates on inputs and raw materials have been reduced, while they have been increased on finished products to encourage more domestic manufacturing.

Safeguards increased

The provisions relating to safeguards and anti-dumping duties have also undergone significant changes. It has been stated that the objective is to prevent an import surge that adversely impacts the domestic industry. There have been several domestic businesses that have faced the brunt of cheap imports in recent times, who would benefit by these measures.

It is clear that the objective is to provide a level playing field for domestic businesses that have been grappling with a demand slowdown and a working capital squeeze in recent times. New provisions have been proposed to avoid cases where the description, name or composition of an imported article is altered in order to overcome the anti-dumping duties imposed on that product. Similarly, any attempt to circumvent the anti-dumping duty provisions by changing the trade practices, pattern of trade or channels of trade would also not be possible in future. There is also an umbrella provision that has been inserted to take care of any other case where the anti-dumping duty imposed is rendered ineffective by any measure adopted by the exporter or importer.

FTA imports

A need has also been felt to regulate imports from FTA (Free Trade Agreement) countries as there is a view that several entities are taking undue advantage of the benefits provided by FTAs. Unregulated imports under the existing FTAs appear to be causing distress to domestic producers. The norms relating to rules of origin, value addition requirements etc., would be more effectively enforced in order to ensure that only those imports that fulfil the FTA requirements are permitted. A review of the rules of origin is also proposed in the coming months in order to ensure that FTAs are not misused.

The Customs duty changes are oriented towards promoting and protecting domestic businesses and ensuring that they have a level playing field whilst they deal with global headwinds.

M.S. Mani is Senior Director, Deloitte India

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Printable version | Feb 19, 2020 2:55:55 AM |

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