Lower peak rates, excise duty to boost trade

Survey seeks fundamental policy changes, though short-term stimuli have had the desired effect.

The Economic Survey 2009-10 calls for fundamental policy changes in trade even as it highlights the fact that the outlook for India’s trade sector in the current year has brightened on signs of recovery in world output and trade volumes.

According to the survey document, reforms, including lowering of peak duties, removing some of the unnecessary customs duty exemption and further reduction in excise duties could provide fillip to trade recovery.

“In the Indian case, while in the short-term relief and stimulus measures have worked, some fundamental policy changes are needed,” notes the Survey. “In the merchandise sector, these include furthering tariff reforms by lowering the peak duties from current 10 per cent to 7.5 per cent by tweaking the rates in the dominant intermediate goods category of imports, besides capital goods,” it says. The Survey also calls for further reduction in excise duties to make exports and industry competitive while weeding out unnecessary customs duty exemptions and streamlining export promotion schemes to reduce duty foregone, which could include reduction of tariffs on all capital goods to a uniform three per cent while simultaneously withdrawing the EPCG Scheme.

Industry representatives have welcomed the Survey observations. A Sakthivel, president, Federation of Indian Export Organisations (FIEO), supported the recommendation to reduce peak basic customs duty to 7.5 per cent, duty on capital goods to uniform three per cent and reduction in excise duty for export-oriented sectors. He reiterated that the Budget should look into the problem of export industry both on direct and indirect tax fronts as well as banking which are making exports uncompetitive and adding to transaction cost.