The Telegraph
Since 1st March, 1999
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Building blocks for duty wall

New Delhi, Jan. 19: The finance ministry is considering extending either the special additional duty (SAD) or countervailing duty (CVD) to most imports so that local companies get a greater degree of protection.

The proposal to build higher tariff walls comes after intense lobbying by home-grown firms carping about having to pay state sales tax, cess and multiple local levies — none of which are eligible for value-added tax (VAT) credit. This, they argue, makes their products costlier than imports.

Industry chambers and politically active barons, especially among small businesses, who find themselves being swept away by the rising import tide, have managed to convince top ministers about the need to be given some sort of relief by enlarging SAD or CVD.

The building block for the great tariff fortress has not been picked. One of the dilemmas is that SAD will be phased out once the country switches to VAT.

Until a final duty structure is in place, officials said some protection could be given by letting SAD stay longer than planned. But since this cannot be a full-fledged long-term measure, a combination where CVD ultimately replaces SAD will have to be hammered out in time.

The Kelkar Committee, on its part, wants SAD to be dismantled. It is not against using CVD as a protective barrier, though it has not recommended using it as a new tariff wall. The thrust is to bring down customs duty in a revision that helps local firms join the rest of the world.

Small businesses, labour-intensive units that wield a great deal of political clout with the BJP-led government, have lobbied for greater protection, painting scary scenarios of massive unemployment if they flounder.

Among the political heavyweights who have veered to this line of thinking is Prime Minister Atal Bihari Vajpayee himself. He is believed to have asked finance minister Jaswant Singh to ensure that the next budget is “friendly” to small businesses.

A recent finance ministry note backs this contention. “An across-the-board reduction in customs tariff accentuates uncertainties faced by business. Though customs duty reforms are necessary, the change should also help to serve the national industrial agenda, which it is currently not doing,” it states.

Finance ministry officials, however, say the basic premise of simplifying customs duty in the way the Kelkar Committee has suggested seems to have been accepted. Under it, there would be a three-tier customs duty rate structure — zero per cent for goods such as life-saving drugs and defence imports, 10 per cent for raw materials and intermediates and 20 per cent for final products.

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