The Union Budget 2020 has provided a definitive push towards government’s Make in India theme with import duties hiked on a host of products from fans, shavers, water heaters and ovens, to shoes, mattresses and lamps, refrigerator and air conditioner compressors to electric vehicles and circuit board of mobile phones.
This increase in import duties that is intended at discouraging companies from importing components and goods from outside India and encouraging them instead to replace them with goods that are manufactured in India, is on expected lines. In her maiden Budget last year too, Nirmala Sitharaman had tweaked import duties on a host of consumer durable items like air conditioners, cathode ray tubes, CD, DVD, CRT monitors and TV and plasma display panels.
“Under Make in India initiative, well laid out customs duty rates were pre-announced for items like mobile phones, electric vehicles and their components. This has ensured gradual increase in domestic value addition capacity in India,” Sitharaman said in her budget speech on Saturday. “Customs duty rates are being revised on electric vehicles, and parts of mobiles as part of such carefully conceived Phased Manufacturing Plans.”
The duty on a host of electrical appliances like fans, food grinders/mixers, shavers, water heaters, ovens, toasters, coffee makers, heaters and iron as also on stationary items like filing cabinets and paper trays have been doubled from 10 to 20 per cent. Duty on compressors of refrigerators and air conditioners has been hiked to 12.5 per cent from 10 per cent, on railway carriage fans from 7.5 to 10 percent, on commercial freezers from 7.5 per cent to 15 per cent and on welding and plasma cutting machines from 7.5 per cent to 10 per cent. On electric vehicles, duty on import of completely built bus and trucks was hiked from 25 to 40 per cent, on semi-knocked down units of bus, trucks and two wheelers from 15 per cent to 25 per cent and on passenger vehicles and three wheelers from 15 per cent to 30 percent. On completely knocked down units of all EVs, duty was hiked from 10 per cent to 15 percent.
The reaction from the industry on these changes in taxation, was mixed.
“From an EV industry point of view, the Budget is quite neutral. The FM has announced new scheme to promote automotive electronics and semi-conductor manufacturing, which in the long run, can aid EV component manufacturing in the country,” said Sulajja Firodia Motwani, Founder and CEO of Kinetic Green and Vice Chairperson, Kinetic Group. “Budget also contains notifications on increased customs duty on EV imported in form of CBU/SKD/CKD, to encourage “Make in India”. In coming years, we feel that duty on EV component import should also be increased to promote local component manufacturing.”
Not many of the components used in EVs are being made in India currently and the Society of Manufacturers of Electric Vehicles says while the direction is correct, it may have an adverse impact on the industry till such time as economies of scale are built in the domestic industry.
“Despite the adverse effect on the cost of the electric vehicles, the increase in import duties on the components (other than the power train and battery cells) is a rational step under the “Make In India” initiative of the government,” said Sohinder Gill, Director General. “It will have a bit of an adverse impact on the vehicles that have high import content forcing the manufacturers to either localise or pass on the costs to the customers.”
Customs duty was also increased on footwear from 25 to 35 percent and on furniture goods like seats, mattresses, lamps and lighting from 20 per cent to 25 per cent. The government said this was done to spur local medium and small enterprises that are involved in manufacture of furniture and footwear.
“Labour-intensive sectors in MSMEs are critical for employment generation. Cheap and low-quality imports are an impediment to their growth. Special attention has been taken to put measured restraint on import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture,” Sitharaman said.