India does not want to give any signal that it is protectionist, finance secretary Tuhin Kanta Pandey said, after slashing import duties on high-end motorcycles, amid US President Donald Trump’s moves on tariffs.
Pandey’s remarks on Sunday came a day after Trump ignited a trade war with sweeping tariffs on Canada, Mexico and China. None were aimed at India, although Trump had called it a tariff abuser during his election campaign last year.
“We don’t want to give anybody any signal that we would like to be protectionist,” Pandey told Reuters in an interview after the budget, which was unveiled on Saturday.
“Our stance is that we don’t want to increase protection.”
Trade and immigration issues will take centre stage when Prime Minister Narendra Modi meets this month with Trump, whose administration India has sought to placate after his accusations that its tariffs hurt prospects for American firms.
India’s budget cut import tariff slabs, reducing average basic customs duties on scores of items such as raw materials for domestic industries like textiles and automobiles, Pandey added.
“We should give the right signal for the world, as well as to our own industry,” Pandey added, saying the tariff measures aimed at helping domestic companies initially but would be phased out as those industries developed.
Trade analysts were not convinced the cuts were sufficient, however.
“India’s average tariffs are still much higher compared to the United States, Japan and China,” said Ajay Srivastava, founder of the Global Trade Research Initiative, a think tank based in Delhi.
While India was slashing peak rates of basic customs duties used for international comparisons, it was adding various surcharges on imports, implying that the total tax burden remained high, he said.
GST rate rejig
The government has gained significant experience in Goods and Services Tax (GST) implementation and now aims to rationalise tax rates in consultation with states, Pandey said at a Ficci post-budget meeting on Monday.
“Now that we have certain experience with GST, it is important to assess the way forward. This exercise requires extensive consultation with states through the GST Council,” said Pandey, who also serves as the revenue secretary.
The GST Council, chaired by finance minister Nirmala Sitharaman and comprising state finance ministers, had set up a Group of Ministers (GoM) to propose rate adjustments and a possible reduction in tax slabs. However, the report on rate rationalisation, expected in the council’s December meeting, remains pending.
India currently follows a four-tier GST structure with rates at 5 per cent, 12 per cent, 18 per cent, and 28 per cent. Luxury and demerit goods fall under the highest bracket, while essential commodities are taxed at the lowest rate. Discussions between the Centre and states have explored simplifying the tax structure, particularly considering the removal of the 12 per cent slab, officials said.
Fitch warning
Fitch Ratings warned India’s gradual pace of debt reduction leaves its sovereign rating exposed to risks from a major economic shock. The agency, however, expressed confidence in the government’s commitment to fiscal consolidation.
“Increased confidence that the government can adhere to its medium-term fiscal framework and keep debt firmly on a downward path would be positive for the sovereign rating over time,” said Jeremy Zook, director and primary sovereign analyst for India at Fitch Ratings. “Still, the pace of debt reduction is gradual, which leaves open downside risks from a large economic shock.”
Meanwhile, Moody’s ruled out an immediate upgrade of India’s sovereign rating despite fiscal consolidation efforts, saying a higher rating would require material improvements in debt burden and affordability.