by Rakesh Mohan
In the area of tariffs, we saw in this paper that the prevailing view of India being a high-tariff economy is not correct. India’s average applied MFN tariffs are close to those of some APEC economies. Importantly, India’s weighted average tariffs calculated based on customs tariffs are very low by global standards, close to those for economies considered to have amongst the lowest average tariffs in the world. This suggests that India’s further tariff reform may need to mainly consider lowering the tariff peaks applicable to certain product categories, reducing the number of rates applied, and simplifying the tariff regime to make it more transparent and predictable.
On non-tariff measures (including for services), this paper has shown a number of areas where more needs to be done to consolidate the reform that is already under way. India is emphasizing on a number of facilitating policies through its flagship programmes such as Make in India. The different initiatives would need to be advanced in a coordinated manner, with further simplification and reducing arbitrariness. These steps must be supplemented by capacity augmentation and regulatory coherence, two very significant reform-oriented initiatives that will need to be combined with other efforts, to implement trade-policy reform through an integrated and coordinated approach.
We see from the discussion in this paper that while significant trade-policy reform has been achieved, India still has a number of remaining areas to address even in the conventional trade-policy areas, e.g. simplification and completing some features of trade-policy reform that were identified in the first few years since 1991. The steps required include these as well as more recent areas covered in trade-policy discussions. Moreover, we need to consider trade policy and domestic policy in an integrated manner, keeping in mind the evolution of trade policy, emergence of new market conditions, and the growth of both formal and informal mechanisms that determine the opportunities provided by global markets.
This implies that the trade policy and trade negotiations governance mechanisms would need to have an overarching reach with timely, informed and interactive consideration of issues. A new approach, using the tools of new technology and an overall large database shared commonly amongst the governance agencies, would need to be developed.
Important aspects of future trade-policy reform include establishing systems to enable such quick information coming to the policymakers about the diverse areas, which are emerging as part of the extended framework of trade policy, both formal and informal. In this context, policymakers need to participate to the extent possible, in both formal and informal initiatives, dealing with the expanded trade-policy agenda. Furthermore, the new emerging developments due to the evolving or disruptive technologies, growth of social and sustainability considerations, and the tendency of policy issues to spill over into the practices of private-sector lead firms in global value chains imply that the policymaker has to not only work with a much wider agenda than before, but also interact much more closely with the private sector than is the conventional practice.
Annex Table 1: India. Non-Agricultural Products’ Tariffs above 10 Per Cent, in the Tariff Schedule, 2015–16
HS Category
Description of Product
Tariff Rate
29337100; 56049000; 84440010
6-Hexanelactam (Epsilon-Caprolactam); Textile yarn, and strip, and the like of Heading 5404 OR 5405, impregnated, coated, covered or sheathed with rubber and plastics; Machines for extruding man-made textile materials
12.5
7113; 7114; Chapters 72 and 73;
Articles of jewellery and parts thereof of precious metals; Articles of goldsmiths’ and silversmiths’ wares or parts thereof of precious metals or clad with precious metals; Iron and steel and articles of steel
15
51052910; 87149100; 871492; 871493; 87149400; 871495; 871499
Wool tops; Parts and accessories of vehicles—frames and forks, and parts thereof; Wheel rims and spokes; Hubs, other than coaster braking hubs and hub brakes, and free-wheel sprocket-wheels; Saddles; Other
20
400121 to 400129; 8903;
Sections of natural rubber in other forms; Yachts and other vehicles for pleasure or sport, rowing boats and canoes
25
38231111 to 38231900; 38246090; 4201; 87120010
Sections of industrial monocarboxylic fatty acids; Acid oils from refining; Mixtures containing halogenated derivatives of methane, ethane or propane; Saddlery and harness for any animal bicycles
30
9804
All dutiable articles, intended for personal use, imported by post or air
35
8702; 8704
Motor vehicles for the transport of ten or more persons, including the driver; Motor vehicles for the transport of goods
40
382370
Industrial fatty alcohols
50
400110
Natural rubber latex, whether or not pre-vulcanized
70
330210; 8711; 98030000
Mixtures of odoriferous substances and mixtures; Motorcycles (including mopeds) and cycles fitted with an auxiliary; All durable articles, imported by a passenger or a member of a crew in his baggage
100
8703
Motor cars and other motor vehicles for the transport of persons (other than under 8702); including station wagons and racing cars
125
Source: http://www.cbec.gov.in/htdocs-cbec/customs/cs-tariff2015-16/cst2015-16-idx and http://commerce.gov.in/EIDB.aspx.
Note: This list is based on only those items that have ad valorem tariffs. Any tariff lines with specific or composite tariffs are not included in this Table. The definition of agriculture is the same as used by the WTO in its data on World Tariff Profiles.
Annex Table 2: India. Imports Share in Total Imports of Non-Agricultural Products with Tariffs Above 10 Per Cent
Tariff Rates (%)
Import Share of Products in the Tariff Rate (%)
12.5
0.019
15
4.118
20
0.034
25
0.186
30
0.072
35
0.001
40
0.013
50
0.016
70
0.003
100
0.028
125
0.054
Sources: http://commerce.gov.in/EIDB.aspx and http://www.cbec.gov.in/htdocs-cbec/customs/cs-tariff2015-16/cst2015-16-idx.
Note: This list of tariff categories in this Table is same as in Annex Table 1. Any tariff lines with specific or composite tariffs are not included in this Table.
Annex I
Parts of the Indian Budget Speech in 1993 that Relate to Customs Duties and explain the Various Considerations Underlying the Customs Duty Reform:
(Paragraphs 82–99. See http://indiabudget.nic.in/bspeech/bs199394.pdf)
82. Since 1973, we have been levying a separate auxiliary duty in addition to the basic customs duty. In order to simplify the tariff structure and the assessment process, I propose to do away with the separate auxiliary duty and merge it with the basic duty.
83. Our first priority in restructuring customs duty should be in the area of capital goods and project imports since these duties affect the incentives for new investment. Last year, the duty on projects and general machinery was brought down from 80 per cent to 55 per cent. This is still too high compared with rates in competitor countries and a further reduction is necessary. I, therefore, propose to lower the import duty on projects and general machinery to 35 per cent. Projects in certain priority sectors such as power, coal mining and petroleum refining currently attract a duty rate of 30 per cent. I propose to reduce the rate to 25 per cent in the case of coal mining and petroleum refining. In view of the special importance of the power sector, the duty on power projects is being reduced to 20 per cent
and this rate is also being extended to machinery required for modernization and renovation of power plants.
84. The House can rest assured that in restructuring duties on capital goods, I have made every effort to protect the legitimate interests of domestic capital goods industry. We have had extensive discussions with various ministries as well as representatives of concerned (sic) industries. In order to ensure that lower duties on sixteen imported machinery do not hurt the domestic capital goods industry, it is necessary to lower the import duty on components, to enable our manufacturers to compete effectively. I, therefore, propose to reduce to 25 per cent the duty on components of general machinery, which presently is either 40 per cent or 35 per cent. In order, however, to ensure that domestic industries producing such components are not adversely affected, I propose to impose countervailing duty on such components at 10 per cent with full facility of setoff under MODVAT.
85. At present, there are a number of other capital goods, including various types of machine tools, which attract different rates of duty in the range of 60 per cent to 110 per cent. There are also instruments, which attract duties varying from 40 per cent to 110 per cent. I propose to rationalize this structure into three duty rate slots, viz. 40 per cent, 60 per cent and 80 per cent. The rationalization involves generally a duty reduction between 20 to 30 percentage points. Consequential reduction is being made in the rates of duty on specified parts and components.
86. Hand-operated tools are capital goods for artisans and skilled workers and currently attract duties varying from 40 per cent to 110 per cent. I propose to prescribe a uniform rate of 40 per cent for all these tools.
87. The logic of reducing duties on capital goods requires lowering of duties on metals and metal goods as well, as these are the basic raw materials of the domestic capital goods industry. Accordingly, to help domestic producers, I propose to lower the customs-duty rates on ferrous metals by 10 to 20 percentage points in most cases. In line with these changes, the import duty on steel scrap is being refixed at 15 per cent. The import duty on specified refractory raw materials is being reduced to 30 per cent. Turning to non-ferrous metals, I propose to reduce the duty rates by 10 to 55 percentage points in most cases. The resulting rates on unwrought and unalloyed forms will vary from 25 per cent to 50 per cent and on wrought forms from 70 per cent to 80 per cent.
88. The duty structure for chemicals is characterized by a multiplicity of rates and many irrationalities. Input duties are often out of line with duties on finished products. I, therefore, propose to restructure the duty rates on chemicals with a view to significantly lowering duty rates at the upper end and also ensuring that the duty rates on inputs are not generally higher than the duty on end products. The present duty rates on basic feed stocks such as ethylene, propylene, butadiene, benzene, styrene and ethylene dichloride vary between 25 per cent and 80 per cent. These rates are being replaced by a uniform low duty rate of 15 per cent. The duties on xylenes, paraxylene, toluene, acrylonitrile and cumene are being reduced to 40 per cent. The duties on DMT, PTA and MEG, which represent a higher stage of production, are being reduced and unified at 70 per cent. In the case of caprolactam, however, the duty is being increased from 50 per cent to 60 per cent, in order to adequately protect the interests of the domestic units.
89. The electronics industry has the potential of becoming a world-class industry contributing to our export effort and to employment generation. I propose to take up this challenge. The rates of duty on project imports and on specified capital goods for electronics attract duty at either 30 per cent or 50 per cent at present. I propose to reduce these rates to a uniform rate of 25 per cent. The import duties on raw materials, piece-parts and components at present are levied at 40 per cent, 60 per cent and 80 per cent. These rates are being reduced to 20 per cent, 35 per cent and 50 per cent respectively. The import duty on specified raw materials for the manufacture of optical fibre cables is being drastically reduced from 90 per cent to 20 per cent in recognition of the urgency of extending and modernizing the telecom sector.
90. In order to strengthen our export capability in existing export-thrust areas such as textiles, leather, marine products, gems and jewellery, where we have a comparative advantage, I propose to reduce the import duty on specified capital goods for these sectors from 40 per cent to 25 per cent. In addition, certain recommendations have been made by the Groups on Extreme Focus items for export for augmenting the export potential of certain sectors such as food processing, horticulture and floricultural industries. Accordingly, the import duty on specified items for these sectors is being reduced to 25 per cent.
91. The ship-breaking industry is employment intensive and an important source of raw materials for the secondary sector of our steel industry. In order to encourage the growth of this industry, I propose to prescribe a lower merged duty of customs at 5 per cent ad valorem. The ferrous materials obtained from breaking up of such ships etc., which are presently subject to excise duty are being fully exempted.
92. Our film industry is one of the largest in the world in terms of the footage of films produced. Although it has achieved this status without much need for incentives, it is now facing greater competition from the electronic media, and deserves some special encouragement. I, therefore, propose to reduce the duties on jumbo rolls of cine positive films from 55 per cent to 25 per cent and on finished cine film rolls from about 65 per cent to 40 per cent. I also propose to reduce the duty on negative cine films from about 35 per cent to 25 per cent.
93. In order to encourage the development of non-conventional energy sources, especially solar energy, the import duty on specified raw materials and items of this industry is being reduced by 15 to 20 percentage points. In respect of wind-operated electricity generators, I propose to reduce the import duty from 40 per cent to 25 per cent.
94. As a gesture of goodwill towards Bangladesh, I propose to fully exempt the famous Jamdanee saris from payment of import duties. Small-scale units, eligible for excise duty exemption for clearances to domestic area are at present required to pay excise duty on goods exported by them to Nepal and Bhutan. I propose to exempt these from this levy. I hope these steps will make a contribution towards improving trade with SAARC countries.
95. At present, accredited press cameramen have the facility of importing photographic equipment free of duty up to a limit of Rs 60,000 but no such facility is available to other journalists to import specialized equipment such as laptop computers, personal computers, fax machines and typewriters. I have often wondered whether this explains why my photographs in the press are better than the editorial comments! As a measure of my commitment to encourage modern technology in Indian journalism, and in recognition of the sterling role played by our pressmen in creating a wider appreciation of issues of economic reform in the country, I propose to allow accredited journalists a one-time facility to import such equipment duty free up to a value of Rs 60,000.
96. The duty rate on certain specified items of baggage was recently reduced from 255 per cent to 150 per cent. As a measure of simplification, I propose to reduce the general baggage rate itself from 255 per cent to 150 per cent.
97. In line with these reductions in import duties for individual sectors, and keeping in mind the present exchange rate, there is scope for reduction in the maximum rate of duty on all goods. Accordingly, I propose to reduce the maximum rate from 110 per cent to 85 per cent except for a few items, including passenger baggage and alcoholic beverages.
98. I am aware that Honourable Members will be concerned that lowering of import duties and import liberalization may put too much pressure on our industry and make it vulnerable to unfair competition and dumping. I would like to assure Honourable Members that these issues have been carefully considered and the proposed changes will not put undue pressure on industry. The change in the exchange rate over the past two yea
rs has created considerable room for duty reduction without hurting domestic industry. Besides, I am also reducing duties on raw materials and inputs, which will help to reduce cost for our producers, enabling them to compete more effectively. Even with these changes, duties on finished products will be well above the long-term structure recommended by the Chelliah Committee. We can move to that goal in phases over the next few years. As for unfair competition through dumping, our anti-dumping laws are already operational and action under these laws will be taken expeditiously whenever it is needed. I may mention that provisional action has recently been taken in one case.
99. In last year’s Budget, export duties had been imposed on iron ore and unpolished granite. Certain difficulties faced by these sectors have since been brought to my notice. I, therefore, propose to withdraw the export duty on iron ore and unpolished granite.
Annex II: Excerpts from Budget Speeches in Various Years
1992
