With a view to cutting imports and promoting Make in India, the commerce ministry has recommended that the import duties on footwear and furniture be raised by 10 percentage points to 35% and 30%, respectively.
Soon, travellers may get to lay their hands on only one litre of liquor, instead of two, and no cigarettes at duty-free shops at airports if the commerce ministry has its way. It has also suggested to the finance ministry that customs duties on as many as 300 products, ranging from footwear, furniture and TV parts to chemicals and toys, be raised in the upcoming Budget, as part of a broader crackdown on what it considers “non-essential” imports, official sources told FE.
Nevertheless, the finance ministry may raise the duties on just a limited number of items, as it has made it clear that any such hike will be effected only after the concurrence of the administrative ministries overseeing these products, said one of the sources. As for the purchase of liquor and cigarette at the duty-free outlets, the commerce ministry feels this needs to be discouraged, as it only adds to “non-essnetial” imports.
Currently, only purchases above two litres of alcohol by a customer attract the usual basic customs duty (BCD) of 100-150%, depending on the variety. Similarly, one can buy up to 100 cigarettes/25 cigars or 125 gms of tobacco products at zero duty beyond which a BCD of 100% will kick in, according to a senior government official.
However, if the proposed curbs are finally implemented, they would hit the revenue of these outlets just when airport retail was supposed to take off in a big way in India, as liquor is the most sought-after item at duty-free shops. A late 2017 report by Bengaluru-based RedSeer Consulting had forecast a quadrupling of the Indian duty-free market to over $800 million (Rs 5,184 crore) by 2025. The Indira Gandhi International Airport in Delhi boasts of the country’s largest duty-free retail space as well as sales, with around 1000 brands and 43,000 products.
With a view to cutting imports and promoting Make in India, the commerce ministry has also recommended that the import duties on footwear and furniture be raised by 10 percentage points to 35% and 30%, respectively. It wants an up to five-fold hike in duties on wooden, metal and plastic toys from the current 20%. Similarly, it seeks higher duties on products such as certain varieties of rubber and paper.
Any such duty hike will mark a gradual shift in India’s policy of adopting an avowedly pro-liberalisation approach to errecting barriers to external trade, if required, to curb ‘non-essential’ and sub-standard imports with potential to harm the economy. The move also signals New Delhi’s growing anxieties over the diversion of cheap Chinese supplies into this country through Asean members (with which India has a free trade agreement) by abusing the rules of origin, as Beijing seeks to beat the impact of its trade war with Washington. China, which alone accounted for roughly 30% of India’s total goods trade deficit in FY19, is a dominant exporter of most of these products on which the ministry has sought higher duties.
But the move will also raise India’s average applied tariff from 17.1%, which is already the highest among RCEP members, although it still remains among the most open economies, as far as non-tariff barriers are concerned (unlike countries like China, South Korea and Japan). The government had already raised duties on a number of electronic and other products in 2018 to promote Make in India and ease pressure on its current account.