The Union Budget for 2022-23, recently announced by the Finance Minister, contains a plethora of alterations in Customs duty on several items. These changes imply that imports could either become costlier or cheaper, depending on the revisions in customs duties. This article discusses the modifications to the import duty, their impact, and their significance.
The New Amendments in Import Duty
Among the most noteworthy changes were the doubling of customs duty on umbrellas to 20%, and the removal of exemptions on importing umbrella parts. Also, the customs duty on single or multiple loudspeakers, irrespective of whether they are mounted in their enclosures, has been increased from 15% to 20%.
On the other hand, cuts were made on the import duty for polished diamonds, asafoetida, cocoa beans, methyl alcohol, and acetic acid. The duty on capital goods and project imports was also overhauled, where concessional rates were phased out and replaced with a moderate tariff of 7.5%. All these changes will be effective starting from May 1, 2022, per the Finance Bill 2022-23.
Rationale behind the Increase in Import Duty
Two primary reasons drove these amendments in import duty. Firstly, the government aimed to protect domestic industries. The increased import duty on items like umbrellas aligns with the previously implemented hike on toys last year. This rise is specifically targeted at industries producing items that do not involve any advanced technology.
Secondly, it was to endorse the ‘One Station-One Product’ initiative. This concept promotes a local product from each Indian Railway station, transforming these stations into hubs for product promotion and sale. ‘One station one product’ is similar to the successful ‘One District One Product’ (ODOP) scheme which aims to tap into a district’s potential, stimulating economic growth and creating jobs and rural entrepreneurship.
Historical Perspective on Import Duty Changes
Over the last five years, changes to import duty have been recurring. In 2021, customs duty exemptions were extended for another year to the steel scrap industry, offering relief to small-scale secondary steel producers. Other items such as cell phone parts and solar panels have frequently seen hikes in their import duty.
Interestingly, prior to these consistent hikes, India’s peak customs duty on non-agriculture products witnessed a significant reduction, falling from 150% in 1991-92 to 40% in 1997-98, then to 20% in 2004-05, and finally to 10% in 2007-08. These fluctuations underline the government’s efforts to protect domestic industries and promote local businesses.
