New Delhi, Feb. 21: The finance ministry is giving a new definition to protectionism. Rejecting the age-old theory of raising tariff walls to protect domestic industry, North Block is planning a major duty rejig in this year?s budget by way of cut in excise to help industry compete with the flow of imports.

Sticking to its global commitments, the government will cut customs duty ? imposed on imports ? on most products, but at the same time reduce excise or manufacturing duty, which is slapped on domestic production.

Empirical evidences show gradual lowering of duties on manufactured goods since the economy started liberalising in 1991 have led to an economic boom, resulting in more revenue collections. The government is, therefore, in favour of reducing the average duty level on manufactured goods.

A note prepared on this issue, after a high-level discussion between the finance ministry and the industry ministry, points out that the growth rates of toiletries, white goods and automobiles, following a reduction in excise rates, have been so large that there has been a spurt in revenues. This trend can be used to propel the economy forward.

?If excise duty is reduced to achieve Asean levels of indirect taxes, it could trigger a demand boom for manufactured goods, which could propel the Indian economy into the big league,? the note says.

Consequently, excise duty on automobiles, telecom and electronic products, white goods and semi-conductors is likely to be reduced. The government believes that lowering the cost of manufacturing in the country will make India more competitive in the global arena. This in turn will help India Inc face competition from imports on a more equal footing.

At the same time, the overall tax regime on businesses like textiles and garments, leather goods, food, IT hardware, electronics and auto components and key services sectors like software, outsourcing, tourism, healthcare and education will continue to remain soft. The logic is that these are labour-intensive areas that create new jobs and can be key drivers of economic growth.

Officials said 80 per cent of the world trade is in manufactured goods. India needs to tap this area in a big way if it wants to increase its share of global trade from the current 0.8 per cent, they added.

While the levy on manufactured goods, which contribute just 17.1 per cent of the GDP and pay up roughly 60 per cent of all indirect taxes, may come down, the services sector, which accounts for 50 per cent of the GDP and pays just 3.2 per cent of central taxes, will now have to pay more.