Economy

Peak customs duty may be retained at 10% in Budget

Amiti Sen Shishir Sinha New Delhi | Updated on January 13, 2013

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FinMin to avoid tricky decisions that impact revenue generation







The Government is likely to keep the average peak customs duty unchanged at 10 per cent for non-agricultural goods in the forthcoming Budget. This is important as the Finance Ministry wants to avoid any decision that could lead to revenue loss and worsen the fiscal deficit situation.

“The commerce department will not suggest lowering of peak customs duty to the Finance Ministry since the Government is not in a position to do anything that would further dampen revenue generation,” a commerce department official told Business Line.

India has not touched its peak customs duty, which is imposed on 90 per cent of industrial goods, for the last six years. While customs duties on certain products may be higher or lower than the peak duty, they hover around the peak rate. The peak customs duty was lowered to 10 per cent from 12.5 per cent in the Budget for 2007-08.

Interestingly, in his Budget speech for 2008-09, Finance Minister P. Chidambaram had argued that since April 2007 the rupee had appreciated against the dollar by 9.8 per cent. Consequently, the case for reducing the peak rate at that stage was very weak. “Hence, I propose to make no change in the peak rate of customs duty,” he had said.

However, the situation is reverse this time. During April-January, the rupee depreciated by over 7 per cent, making a strong case for reducing the peak duty. Fall in imports across sectors, especially of capital goods and intermediaries, has resulted in lower growth of manufacturing, thus building an argument for peak duty reduction.

The Finance Ministry, however, is not supporting peak duty cuts mainly due to lower-than-expected collection of customs duty this year. The Finance Ministry has proposed to collect Rs 1.87 lakh crore from Customs this fiscal. This requires a growth rate of 23 per cent. However, during April-November, the Government managed to collect Rs 1.04 lakh crore, which shows growth of just 4.8 per cent. Now, with uncertainties still prevailing in Europe and the US, there is little hope that trade will grow at a much faster rate during next fiscal.

> Amiti.sen@thehindu.co.in

> Shishir.Sinha@thehindu.co.in

Published on January 13, 2013

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