NEW DELHI: India’s moves to create protectionist walls to help domestic manufacturers may have to be re-looked at, as India’s major trading partners, including the US with which the country is locked in a trade spat, have been objecting to the import duty hike, and have started dragging India to the World Trade Organisation (WTO).
Top commerce ministry officials said the government would have to be careful on future duty hikes as “increasingly, we are being challenged on this score by our trade partners.” India has raised import duties on 75 products in the new Budget to give a push to its ‘Make in India’ programme.
The US officials, who visited India to discuss trade disputes between the two countries, wanted a roll back of duty not only on 28 US imports — on which India slapped higher duty as a retaliation against the US removing duty-free imports to over 2,000 Indian goods — but also on a host of other items such as agriculture goods, dairy products, medical devices, IT and communication items.
In order to bolster the ‘Make in India’ policy, which seeks to encourage local manufactures, the government has been slowly raising taxes on steel imports, mobile handsets and electronics, and their parts.The move to tax electronics goods and their parts came after policymakers recognised the drain of foreign exchange in buying electronics, which has become the third largest component of India’s rising import bill, after gold and oil.
Trade analysts calculate that electronic imports will surpass oil imports by 2020 and could cost an astounding $300 billion by then, if the current growth trends continue. The way out, they argue, is to increase taxation to progressively force manufacturers such as Apple and Samsung and their suppliers to shift base to India.
However, a round of import duty increases earlier has already created a global furore. The European Union, USA and Japan are among those who have objected before the WTO to India’s move to raise customs duties on mobile phones, TVs and projectors.
“We increase duties not only during the Budget, but also later in the year. So, it escapes public notice, but foreign firms impacted by it complain to their home governments who raise it as a dispute,” said JNU professor Biswajit Dhar, who is also former director-general of trade think tank RIS.
Indian officials said smartphone-makers were given an opportunity to import components duty-free to start with. Over five years, they were expected to increase the degree of indigenisation to 50 per cent by value. To get them to start making more parts locally, duties on parts have been raised.
However, Japan has already filed a complaint before the WTO claiming that India has imposed higher-than-permitted duties on smartphones, base stations and circuit boards, besides their components.
“The Government of India has continued to adjust the rates of various indirect taxes, including custom duties, in support of policies seeking to foster domestic production and value addition,” Japan said, adding that since India launched its ‘Make in India’ campaign in September 2014, it has “continuously and systematically raised import duties on a wide range of products in various sectors”.
A major contention
The European Union, USA and Japan are among those who have objected before the WTO to India’s move to raise customs duties on mobile phones, televisions and projectors
During the recent trade talks, the US officials demand a roll back of duty on 28 US imports —on which India raised tariffs — as well as a host of other products