Union Budget 2021 India: Move in sync with Atmanirbhar Bharat, but not unduly protectionist, say officials
Indian Union Budget 2021-22: The upcoming Budget will likely raise customs duties on several dozen products, including certain electronics and electrical items and auto parts, as the government steps up focus to boost local manufacturing and curb sub-standard, non-essential imports. But the hikes are likely to cover imports of a few billion dollars only, or a tiny fraction of the country’s annual imports ($475 billion in FY20).
“It’s not targetted to be a revenue-enhancing measure but the duty rationalisation is essential for the Atmanirbhar Bharat programme. The final list of products is ready and the Budget will make the announcement,” an official source told FE.
He, however, stressed that the move is not aimed at targetting imports in general, rejecting the notion that the country is getting unduly protectionist. Rather the government will target only a few segments of imports where local substitution already exists in great measure or is possible. In a few cases, it will correct inverted duty structures, under which raw materials are taxed higher than the finished products.
An industry source said duties are likely to be raised on about 100 tariff lines.
Earlier this fiscal, industry executives had drawn a list of 1,173 items – ranging from auto parts, compressors for AC and refrigerators to select steel and aluminium products and electrical machinery — for the government to zero in on products/sub-products on which the import duties can be hiked. These items are mostly imported from China and can be substituted with local production without much hassles, sources had said earlier.
Imports of these 1,173 items from China were worth $12 billion in FY19. They made up for just 2.3% of India’s total imports that year but 17% of New Delhi’s purchases from Beijing.
While any duty hike won’t be country-specific, in keeping with the fair trade principles, it could hurt China the most, as Beijing is the biggest supplier of such cheap and low-grade products to India.
Even before the Budget for FY21 was tabled, the commerce and industry ministry had suggested that customs duties on as many as 300 products, including footwear, furniture, TV parts, chemicals and toys, be raised, as part of a broader crackdown on what it considered “non-essential” imports. The Budget for FY21 raised the duties on dozens of products but didn’t cover all these items.
However, as sources had pointed out earlier, China’s misadventure at borders with India only hardened New Delhi’s resolve to target the substandard imports from the neighbour. Combined with the Covid-19 pandemic and unreliability of supply chains dominated by China, the border clash prompted India to pursue self-reliance with a renewed sense of urgency.