Budget 2005-06: new trade policy paradigms clearly emerging for SMEs

Posted: Wednesday, Mar 09, 2005 at 0000 hrs IST
Updated: Wednesday, Mar 09, 2005 at 0000 hrs IST

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: by WTO members to reduce the bound rates of customs duties multilaterally, there should not be shocks for Indian SMEs at the 15% peak duty level proposed in the budget currently. There may be a few tariff lines, though, which may require special treatment.

Second, the budget puts a stamp on harmonisation of classification of excise and customs at ITC HS 8-digit level. This is a development of far-reaching consequences, as it seamlessly connects the domestic and international trade so far as classification is concerned. The classification issues are going to be important, as India enters into a spate of bilateral and regional FTAs. This will obviate the need to lobby for favourable classifications and their resultant distortions in the value chains in domestic trade. Third, the budget specifically focused on two of India’s most promising sectors from the exports point of view, textiles and leather. Both the products figure in the WTO-Nama negotiations, under the zero-for-zero proposal. Though it is not yet certain whether countries would agree for a zero-duty regime on the two sectors, yet the Budget prepares a ground for the two sectors to take on higher responsibilities.

Accordingly, the customs duties have been brought down on important machinery for leather, from 20% to 5% and on ethyl vinyl acetate, an important input, from 20% to 10%. Similarly, in textiles, the budget announced dereservation of 30 textiles (knit products) of a total of 108 to be dereserved this year. Further, duty reductions have been announced on polyester, manmade yarn and textile machinery. Fourth, the Budget makes the historic move for implementation of Vat. Though it didn’t announce details and passed the responsibility of implementation on states, yet the move is extremely significant. What is reassuring are the post-Budget comments on the chairman of the empowered committee on Vat, Asim Dasgupta, that states will not change the APril 1 implementation date. The promise of Vat is alluring, as it promises to reduce the cascading affects of taxes, remove distortions and increases ancillarisation, smoothen the flow of goods across different states and reduce transaction time and cost. Making the possibility of India as one market a reality. It would remove artificial incentives affecting the choice of location of business and also bring about a shift from the archaic physical verification system to an audit-based system. More significantly from the trade point of view, Vat frees exports from the tax...

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