Taking Stock

New Delhi, March 29: The government is considering rationalising the duty structure of a large number of imports, where free trade pacts have reduced duties on finished products, leaving the levy on inputs at higher levels.

Finance ministry officials said the North Block was in talks with the ministries of commerce, textiles and industry and the Planning Commission on this issue.

Officials said a series of inter-ministerial consultations will ?try to iron out the wrinkles?.

By the time the finance bill is taken up, the government would have worked out changes in the duty structure to address the ?genuine concerns about competitiveness of the Indian industry?.

Indications on how things will progress may, however, be available in the foreign trade policy to be announced in April. The matter has assumed serious proportions despite the budget trying to address the issue, said officials.

For instance, colour TVs and white goods can be imported from Thailand in the near future without paying any duty because of a free trade pact with that country. The pact ?envisages elimination of duty on 82 selected items in a timeframe of two years?. However, duty on many of the inputs needed to make similar products in India ?remains unchanged?.

A document on this issue says, ?It is imperative that urgent attention is paid to the rationalisation of the inverted duty structure on specific segments.

Certain capital goods and IT hardware covered under the Information Technology Agreement are adversely affected as imports of these items have become duty free with effect from March 1, 2005.?

Similarly, the FTA with Thailand allows tyres to be imported at 10 per cent customs duty, while that on natural rubber imported from Indonesia or Malaysia remains at 20 per cent.

?We need to work out a strategy to deal with this problem on a longer timeframe because these will not be the only FTAs we will enter into,? officials said.

The government feels that it has to work out a policy prescription not only for duty structures but also for FDI following the opening up through trade pacts. ?If a transnational finds that it can get a better deal in terms of FDI allowed, or time taken in getting clearances in a country, which is allowed to export to India at zero duty, then the transnational is unlikely to invest here. The investment will simply shift to the exporting nation.?

India and the Asean members are already working towards an India-Asean Regional Trade and Investment Area, including a free trade area in goods, services and investment by progressively eliminating tariff and non-tariff barriers.

The first fruits of trade liberalisation are expected to be available through an early harvest programme, which will give tariff concessions quite soon. The regional grouping has identified 11 priority areas of focus for trade and investment in India. These include locomotives, rubber, textiles, garments, agro-processing, fisheries, power, infocom, healthcare, airways and tourism.