Govt may consider effect on industries before imposing duties

On the day the Union Budget was presented, the government raised import duties on a number of items to protect domestic industry, especially micro, small and medium enterprises (MSMEs). The government also reduced import duties on a few items and suspended the levy of anti-dumping duty (ADD) and anti-subsidy countervailing duty (CVD) on some steel items to help MSMEs. The government also proposed to strengthen certain provisions relating to the levy of ADD and CVD.

As a rule, tinkering with the duty rate structure complicates tariffs, gives rise to classification disputes and encourages lobbying. That is why successive finance ministers moved towards a single rate for all items in a chapter. However, for the last few years, selective changes have been made in the rates to raise revenues and increase protection to some industry segments.  Nevertheless, this time, in a limited way, the government has recognised that high import duties on primary products adversely impact the downstream user industries, especially MSMEs.

In her Budget speech, the finance minister said, “MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices. Therefore, we are reducing Customs duty uniformly to 7.5 per cent on semis, flat, and long products of non-alloy, alloy, and stainless steels. To provide relief to metal recyclers, mostly MSMEs, I am exempting duty on steel scrap for a period up to March 31, 2022. Further, I am also revoking ADD and CVD on certain steel products. Also, to provide relief to copper recyclers, I am reducing duty on copper scrap from 5 per cent to 2.5 per cent”.

This is the first time that ADD and CVD have been suspended to help user industries. The extent to which this will help is unclear. The global and domestic steel prices remain high and India mostly imports steel from countries with which it has free trade agreements. Reportedly, investigations have been launched following allegations of cartelisation by domestic steel producers. The Finance Bill 2021 proposes to align ADD and CVD provisions relating to duty free import of inputs by export oriented units and units in Special Economic Zones that are subsequently sold in domestic tariff area (DTA) or used in the manufacture of products sold in DTA. For the first time, anti-absorption provisions are introduced to counter the effect of price reduction by foreign suppliers that effectively take away the protection to domestic industries through imposition of ADD or CVD. The imposition of ADD or CVD can be from the date of initiation of anti-circumvention investigations.

The proposals include imposition of ADD for less than five years and limit the period of any temporary revocation to one year. From July 1 onwards, final findings on any review of ADD must be given at least three months before the expiry of ADD under review. The rules relating to safeguard measures are being amended to establish the manner and procedure for investigating cases of imports in increased quantity that cause injury to domestic industry, and imposition of tariff rate quotas.

Henceforth, the government may consider the likely effect on user industries before imposing ADD or CVD.

Email: tncrajagopalan@gmail.com