While US president Donald Trump and commerce secretary Wilbur Ross have slammed India for creating ‘tariff barriers’ to trade, New Delhi has told Washington that it will lose as much as $3.2 billion a year in customs revenue if it scraps the up to 20% duties on the seven ICT products, including high-end cell phones and smart watches, acceding to the US demand, according to a source.
Its potential revenue loss, says New Delhi, will be way above the export incentives of $190 million that the US offered India in FY18 under the so-called generalised system of preferences (GSP). Even that incentive amount might have dropped further in FY19 when the US first dropped 50 items from the list of items eligible for incentives and later, in March, announced the withdrawal of the programme in 60 days.
Also, even if India scraps or trims the duties, only China and Hong Kong will be the biggest beneficiaries of the move and the US will hardly gain, New Delhi has conveyed to Washington. This is because the US made up for only 2% (or $415 million) of India’s imports of these seven products worth $20.5 billion in FY18.
Instead, New Delhi is willing to cut duties on those ICT (information and communications technology) products that will be of greater interest to the US, said the source. The potential customs revenue loss estimate is based on India’s imports of such items in FY18, added the source.
Ross on Tuesday flayed India for imposing “not justified” tariff on ICT products (20%), motorcycles (50%) automobiles (60%) and alcoholic beverages (150%). Echoing Trump’s charge of India being a “tariff king”, Ross said at a trade event in New Delhi: “India’s average applied tariff rate of 13.8%, and that remains the highest of any major world economy. The very highest.” Trump has frequently accused India of imposing “high” duties on Harley Davidson and whiskey. Ross added: “(Indian) Tariffs for network routers and switches and parts of cellular phones are as high as 20%. In stark contrast, the US rate for these same products exported from India to the US is zero — zero versus 20%.”
The American demand for the elimination/reduction of tariff in ICT products and the relaxation in New Delhi’s price control regime for medical equipment is the biggest stumbling block in sealing an elusive bilateral trade package and have contributed to the flaring up of trade tussle between the two countries, said the source.
The items on which the US wants India to cut/scarp duties include high-end mobile phones costing over Rs 10,000, mobile phone parts, smart watches, telecom network equipment (such as switches and routing equipment), radio receivers and certain print circuit assemblies.
New Delhi feels any move to cut duties drastically would run contrary to its Make-in-India initiatives, apart from raising non-essential imports (which it wants to curb) and causing customs revenue losses. Higher customs duty collection in FY19 (Rs 1.3 lakh crore in the revised estimate against the budgeted Rs 1.12 lakh crore) partly offset the wide shortfall in the government’s goods and services tax collection. For the current fiscal, the interim Budget has pegged the customs duty collection of Rs 1.45 lakh crore.
India and the US didn’t hold the annual trade policy forum meeting so far last year (it is usually convened around October), in a sign that bilateral relations were far from perfect. For its part, in the hope for a “mutually-acceptable” trade package, India has already deferred its plan a number of times to retaliate against the extra US duty on its steel and aluminium (The fresh deadline for the tit-for-tat action is May 16).