Higher duty on more non-essential items ruled out

In case of imports of precious, semi-precious stones and pearls, curbs may not be possible because significant portion of these items processed in India

The government may not levy higher customs duty on imports of non-essential items like electronic goods. The commerce ministry has told the finance ministry that most electronic goods are covered under IT agreements with other countries and India unilaterally cannot raise the rates.

In case of imports of precious, semi-precious stones and pearls, the curbs may not be possible because a significant portion of these items is processed in India and exported back in finished form or jewellery. That leaves the finance minister mainly with consumer durables like television sets, refrigerators and air conditioners, but officials fear that would not have any significant impact.

Economic Affairs Secretary Arvind Mayaram also indicated the government would not hike duties on more non-essential items to tame Current Account Deficit (CAD) as curbs on imports of gold, silver and platinum should serve the purpose.

“As far as imports are concerned, we have said we will curb non-essentials and we have taken measures to do so. Now you will have to live with that for a while,” Mayaram said.

Earlier this week the government had raised import duty on gold, platinum and silver to 10% to curb their demand and rein in CAD at 3.7% of the GDP this financial year. The increase will give the exchequer an additional Rs 4,830 crore.

 
“Most of the electronics items are zero-rated and covered under IT agreements with various countries. Duty increase on consumer durables would just have a symbolic effect. It would not make much difference to the CAD,” said a finance ministry official.

Another fear is that if India increases duty on certain products, which hurts exports from a particular country, that country may retaliate by increasing duties on exports from India of another product.

At $31 billion, electronic goods comprised 6.3% of the total imports of $490 billion in 2012-13. Pearls, precious & semi-precious stones were $22 billion or 4.4% of the total imports. Petroleum, gold and machinery comprised 34.4%, 11% and 5.5% of the imports, respectively.

India is a major importer and consumer of gold and silver. The quantity of gold imported during 2012-13 was 845 tonne valued at Rs 2,45,862 crore. About 1,963 tonne of silver worth Rs 10,691 crore was imported last year. Due to rise in imports of gold, silver and crude, CAD swelled to 4.8% last year. Imports of gold have increased by 87% to 383 MT in April-July 2013-14, while silver imports in the four-month period showed an increase of 200%, valuing at Rs 12,789 crore.

Last month Finance Minister P Chidambaram had said the government was looking at some compression in non-oil and non-gold imports, especially of non-essential goods. “There's no rocket science in manufacturing basic electronic hardware. It can be manufactured in states like Rajasthan and Kerala,” he had said.