'Eliminate countervailing duty on imports to boost domestic industry'

To revive manufacturing — the prime focus of the Prime Minister’s `Make in India’ campaign — the Economic Survey has proposed elimination of exemptions in countervailing duties (CVD) and special additional duties on imports to provide a level playing field to domestic industry, which pays high local taxes.

Removal of this ‘negative protection’ to Indian industry, which adds up to a whopping Rs 40,000 crore every year, is better than resorting to protectionist measures such as higher import tariffs and local content requirements, the survey for 2014-15 said.

Protectionist measures could be challenged at the World Trade Organisation, go against Free Trade Agreements and also affect the country’s openness credentials, it added.

While a final solution to the anomaly will be enacting a well-designed GST, preferably with one internationally competitive rate and with narrowly defined exemptions, the Economic Survey also proposed an interim solution.

“The default situation should be an exemptions-free regime. If particular sectors seek relief from the CVD, they should be required to make their case at the highest political level,” the Survey said.

Other uncontroversial responses to the `Make in India’ challenge consist of improving the business environment by making regulations and taxes less onerous, building infrastructure, reforming labour laws, and enabling connectivity, the survey said.

These would reduce the cost of doing business, increase profitability, and hence encourage the private sector, both domestic and foreign, to increase investments.

A well designed industrial policy could also boost manufacturing. Measures could include providing subsidies, lowering the cost of capital, and creating special economic zones.

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