A suggestion to harmonise the peak customs duty on industrial goods at 7%, concrete steps aimed at doubling farm income by 2022 and shifting labour-intensive economic activity to the formal sector figured prominently as Prime Minister Narendra Modi met economists and sector-experts, ahead of the Budget 2017-18, reports
fe Bureau in New Delhi.
In day-long deliberations anchored by the NITI Aayog, reforms steps that have long remained as unfinished agenda like agricultural marketing reforms, imparting skills compatible with industry’s needs to the employment seekers and improving the quality of school and higher education also came up.
India’s peak customs duty (the highest of the normal rates) on non-agriculture products had come down steeply from a prohibitive 150% in 1991-92 to 40% in 1997-98 and further, to 20% in 2004-05 and 10% in 2007-08. Broadly, the basic customs duty corresponds to the tariff on imports as other duties on imports like CVD are in lieu of taxes that domestic goods suffer.
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The proposal to bring down the peak customs duty further to 7% is in line with streamlining the same with the corresponding duties in Asean countries. NITI Aayog vice chairman Arvind Panagariya said experts have suggested that harmonising the duty at 7% will address the issue of “duty inversion” that hurts domestic manufacturing. Duty inversion or inverted duty structure occurs when the tariffs on finished goods are lower than that on components, intermediate goods/raw materials.
The duty harmonisation, however, needs to be revenue-neutral.
The meeting also stressed the needs for creating clusters of economic activity for achieving efficiency and economies of scale. With wages in China rising fast and Indian pays increasing relatively slowly, the country should try and gain strength in employment-intensive export sectors like textiles and footwear, Panagariya noted.
While it is a fact that 90% of India’s labour force is in the low-paying unorganised sector, many experts have pointed out that pushing them to the formal sector artificially could create distress.
On comments by some experts that the country’s tax mop-up is only a fraction of what is owed to people, the Prime Minister said people might not avoid paying taxes if they are satisfied that the revenue earned through taxation is well spent, according to Panagariya.