Central Government is planning to raise duty on non-essential items in order to tackle a widening trade deficit and an anticipated slowdown in exports. The economic ministries in the Centre are shortlisting items for the same in such a way that only non-essential items for which India has enough manufacturing capacity will face the duty hike, according to an Indian Express (IE) report.
To combat the increasing trade deficit, actions can be taken to either increase exports or disincentivise imports or a combination of both. However, due to poor economic outlook at the global level, India’s exports can suffer. Hence, hiking duty on non-essential items can curb the increase in import bills.
“We are looking at non-essential imports for which there is enough manufacturing capacity. It is to identify non-essential items, where there is sufficient production capacity and allow for higher import substitution,” a senior official told IE.
While the proposed hike will apply to certain non-essential items, the Centre is also seeking ways in which commodities that come under the same Harmonized System of Nomenclature (HSN) code can be separated.
A single HSN code broadly sweeps several related items under the same tax rate. However, in the newly planned hike, only a few items under an HSN code will face the raised rate.
For example, various materials used for bicycle manufacture such as steel, alloy and ceramics fall under the same HSN code. With the newly proposed hike, the Centra can raise import duty for only steel because of India’s ability for excess steel production.
Import duty hikes have been regular over the years with items like mobile phone parts frequently subjected to rate hikes to promote domestic production. The last major hike in import duties of items was announced during Union Budget 2022-23.
Although India’s merchandise exports improved marginally last month, the country’s overall exports are still experiencing a negative trend.