Import duty cuts on budget agenda
The Telegraph, Calcutta, India
Import duty cuts on budget agenda
28 February 2011
By R. Suryamurthy
New Delhi, Feb. 27: Finance minister Pranab Mukherjee is expected to announce a slew of import duty cuts in Union Budget 2011-12 to fulfil the commitments in India’s free-trade agreements (FTAs).
The concern is whether the lower duties on final products from the FTA partners vis-a-vis the duties on raw materials from non-FTA countries will hurt local manufacturing.
India has inked free trade pacts with Japan, Malaysia, and Korea, and is in the final stages of negotiations with the European Union. While the pact with Japan will come into force from April, the deal with Malaysia will be effective from July.
Japanese imports to become duty-free include consumer goods such as mobile phones — including SIM and memory cards — calculators, chargers, compact discs, DVDs and video cameras, and textiles such as woven and silk fabrics
Similarly, Malaysia will face fewer barriers on the sale of its fruits, engineering goods, cocoa, palm oil products, synthetic textiles and chemicals.
The deal with Japan paves the way for the elimination of tariffs on more than 90 per cent of the goods traded between the two countries over the next decade. The pact with Malaysia also aims at reducing, or eliminating, tariffs on over 90 per cent of the goods traded between the countries.
With these pacts, the government aims to double exports to $450 billion by 2014.
In the current fiscal, the shipments are expected to touch $225 billion. Exports in the 2009-10 fiscal were $178.6 billion, a decline of 3.6 per cent over the previous fiscal.
In its strategy paper on doubling exports by 2014, the commerce ministry said “it sees FTAs as ‘building blocks’ towards the overall objective of trade liberalisation and these should complement the multilateral trading system. FTAs have become an important tool globally for achieving economic objectives and increased market access”.
However, the economic survey of 2010-11 said that “while there are benefits from these FTAs for Indian exports, in some cases the benefits to the partner countries are much more, with net gains of incremental exports from India being small or negative.
“FTAs also lead to a new type of inverted duty structure with duties for final products being lower from FTA partners compared with duties for the previous stage raw materials imported from non-FTA countries. This acts as a disincentive to local manufacturing,” the survey authored by chief economic adviser Kaushik Basu said.
The survey also says the “policy challenge related to FTAs should take note of specific concerns of the domestic sector and ensure FTAs do not mushroom. Instead, they should lead to higher trade, particularly higher net exports from India”.
India has concluded 10 free trade agreements and five limited scope preferential trade agreements.
At least seven more proposals for FTAs are under consideration.
