NEW DELHI: With the preparation of the budget for 1992-93 in full swing, the finance ministry is finding it difficult to drastically prune the customs duty as proposed by the International Monetary Fund (IMF). However, a beginning is ‘expected to be made in his direction in the coming budget with the finance minister reducing duties on a number of items including cars, capital goods, baggage’s and automobile components. The reduction could range between 30 and 40%.
Sources in the north block say the finance minister, Dr Manmohan Singh will make a commitment in his budget speech that the customs duties will be brought down to international levels in the next two years. He cannot do it in one go as he has to bring down fiscal deficit from the preset targeted level of 6.5% of the gross domestic product (GDP) 10 5% next year. This is an extremely difficult task. The government has already made a commitment to this effect to the IME.
Finance ministry sources acknowledge that India’s customs tariff in is among the highest in the world. This has made Indian goods non-competitive in the international market. Not only the IMF all industrialized countries, including the United States, Germany and Japan, have asked for ‘substantial tariff reduction. The ‘government now realizes that it is one of the important steps to attract foreign involvements. Important duty in India averages around 150%, in certain cases going up to 350%. For instance, cars attract a duty of 315%.
“Market rumors that the government is under pressure to reduce ‘import duty has practically stalled ‘imports with the industry preferring to wait till the budget is presented, This is one of the reasons for the short fall in customs revenue which is about Rs 3600 crore so far this year, The government is now willing to release foreign exchange for critical raw materials but the industry does not seem keen to avail of it immediately. ‘The finance ministry believes that the customs revenue shortfall at the end of the current financial year could be limited to Rs 3500 Crore, In January the collections shown the target of 8s 2600 crore. Sources admit that this was not because of any increase in impose but because of the amendment to the customs act on December 23, Which reduced the warehousing Period from three months to 30 days. Importers were also required to pay half of the total duty the time of bonding.
In the present climate of liberalization, the government feels that a reduced import duty on capital goods and raw materials is must to boost domestic production, Hundreds of applications are before the government for import of capital gods under paragraph 197 Of the trade policy, This facility allows import of a goods up to a value of Rs 10 crore by existing manufacturer exporters on the” Commitment that they would export three times the value of imports in four years. Under this scheme, capital goods attract only 25% as against the normal 80%, There is a possibility that some of them may: default, Even then exports as well as domestic production will go up.
Article extracted from this publication >> February 14, 1992
