Economy News

‘Average import tariffs must reduce to below 10%’

The basic customs duty structure has not been reviewed in 20 years resulting in over 27 different duty rates and over 100 specific or mixed duty slabs.

The new government should look at simplifying the basic customs duty structure, increase exemption limit on Goods and Services Tax (GST), explore changes in Production Linked Incentive (PLI) scheme and put special focus on energy security and ease of doing business reforms, according to think tank Global Trade Research Initiative (GTRI).

The basic customs duty structure has not been reviewed in 20 years resulting in over 27 different duty rates and over 100 specific or mixed duty slabs. Currently, 85% of customs duty revenue comes from less than 10% of tariff lines, while 60% of tariff lines contribute less than 3% of revenue. “With some adjustments, the average import tariff could be reduced from 18.1% to below 10% without impacting important products. This will also counter international criticism of high customs duty in India,” a report by GTRI said.

It recommended an increase in the GST exemption limit from 40 lakh to 1.5 Crores as it will be transformative for India’s MSME sector, promoting job creation and growth. Firms with less than Rs 1.5 Crore turnover make up over 80% of registrations but contribute less than 7% of tax collected. 

“The new limit would reduce the GST system’s load from 1.4 Crore taxpayers to less than 23 lakh, allowing for the introduction of invoice-matching for 100% compliance, eliminating fake invoices and tax theft. Increased tax collection will offset the 7% tax loss,” the report said.

GTRI also suggested simplifying the criteria for the PLI scheme as firms now must meet multiple conditions on investment, production, sales, localization, and input types. Many firms that have started production struggle to meet these criteria and miss out on incentives. As a result, less than 5% of the available funds have been used by the end of fourth year of the scheme. Review the criteria and provide incentives to firms that meet the core scheme norms. This will help firms that have invested in manufacturing in India.

It also called for evaluation of performance of Free Trade Agreements (FTAs) to identify areas of improvement and lessons for ongoing FTA negotiations which will ensure that the agreements meet the objectives and benefit the Indian economy. India has 14 FTAs with 22 countries and is negotiating new ones with 49 countries.

India has more than 20 Lakh firms that produce good quality products and services but less than a lakh of these export. Simplifying Reserve Bank of India, banking, Customs, GST and DGFT rules related to e-com export will help them to start exporting Handicrafts, jewellery, ethnic wear, decorative paintings, Ayurveda and many more products.

To cut the industry’s reliance on China the report called for adopting a strategic approach. India relies on China for 30% of its industrial product imports, with imports soaring tenfold in the past two decades. China is also the top import supplier in each of the major industrial product categories. As Chinese firms expand their operations in Indian markets, imports are expected to rise further. This escalating dependence calls for a strategic approach to cut reliance on China.

GTRI report also talked of not incentivising the low value added electric vehicles

Due to restrictions from the US and EU on Chinese EVs, China is shifting its focus to Southeast Asian markets, including India. In a few years, every third EV on Indian roads, as well as numerous passenger and commercial vehicles, could be made by Chinese firms, either independently or through joint ventures with Indian companies. Since current EVs rely heavily on Chinese batteries and parts, accounting for 60-90% of their cost, “It’s crucial to balance increased EV adoption with the need to protect and develop the domestic auto industry.”

In pharma also the dependence on China has to be curbed through domestic manufacturing  as India imports 70% of its Active Pharmaceutical Ingredients (APIs) and over 80% of its biosimilars from its northern neighbour posing a significant risk to industry and national security .

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