Budget 2021: Customs duty hike to make electronics items more expensive

To give a push to its Atmanirbhar Bharat policy, the Centre on Monday unveiled a revised Customs duty structure that will effectively increase duties on a wide range of items.

The upward revision in rates, effective from Tuesday itself, are intended to curb import of auto components and agri produce. In sectors like electronics, they may lead to further price hikes in the coming months.

In the Budget for 2021-22, finance minister Nirmala Sitharaman introduced higher import duty rates on over a dozen handset and automobile components. 

Key electronic components like printed circuit board assembly, camera module and connectors will now attract 2.5 per cent duty. 

In the automobile sector, Customs duty rates for dozens of items, like safety glasses, parts of the signalling equipment, brakes and ignition wire sets have been raised to 15 per cent from 10 per cent.

Further, import of a vast number of items in the agri sector, fabrics, gems and jewellery, plastics, chemicals and leather have been made unattractive by hikings duties on them.

According to industry stakeholders and experts, some revisions are aimed at boosting the government’s localisation of production plan. Others have been introduced to protect local producers and manufacturers against cheaper imports from countries like China.

In the electronics sector, for example, steeper import duty rates are a precursor to upcoming schemes under the production-linked incentive (PLI) plan. The finance minister has already hinted at bringing 13 sectors under the PLI. “These hikes are part of the broader plan to push local production of electronics and auto components. In the short term though, these may lead to price rise,” said Bipin Sapra, tax partner at EY India.

Executives from the handsets industry – that is grappling with steep rise in component prices – said the move will further increase pressure on manufacturers.

“The mobile and electronics sector should have been spared from the general removal of exemptions where there was zero per cent import duty. The hikes are also not in line with the consultation held with the industry and recommendations of the subject ministry and experts,” said Pankaj Mohindroo, president of Indian Cellular and Electronics Association. 

The move will push the industry back on the exports front, he felt.

Rushabh Doshi, research manager at Canalys, said given the price hike the industry is already taking, vendors will have to find creative ways to ensure that the additional duty is not passed on to consumers.

In the auto sector, the hikes are intended to curb cheaper imports and streamline the duty structure. “The government has targeted only a few segments of imports where local substitution already exists or is possible,” said an executive of a component manufacturer.

According to Deepak Jain, president, Automotive Component Manufacturers Association, increase in basic Customs duty on select auto components will encourage local manufacturing.

Customs duty on compressors, used in refrigerators and air conditioners, have also been raised but it will have little impact on the price, said B. Thiagarajan, managing director, Blue Star. 

Moreover, the extension of duty exemption on steel and copper scrap will mitigate much of the hike in duty.

Duty changes in the agri and fabrics sectors are mostly intended to protect local producers, said experts. According to Shivendra Nigam, chief financial officer (CFO), Cantabil Retail, while raw material prices have gone up by 5-10 per cent recently, the 5-10 percentage points duty hike on cotton, silk and cotton waste will help micro, small and medium enterprises (MSMEs).

A large number of agri produces have been made costlier to import. Apples, maize bran, peas, kabuli chana, Bengal gram, lentils, crude edible oils (palm, soybean and sunflower) and fish feed will attract lower duties. But an additional cess has been levied on these goods – in the range of 20 to 50 per cent – which takes the effective import duty rates to same or higher levels than the existing rates.

On imported liquor, which used to attract a steep 150 per cent duty, rates have been brought down to 50 per cent, accompanied by an additional 100 per cent cess. This will keep prices in check, said Abneesh Roy, executive vice-president at Edelweiss Securities. 

On gold, import duty was hiked from 10 per cent to 12.5 per cent in July 2019. In the Budget, effective duty, including agri cess, has been brought down to 10 per cent.