Tariff protection for domestic products can’t be forever: CBIC chief

Higher basic customs duty rates wherever introduced to protect the domestic industry from global competition, cannot continue perpetually, Central Board of Indirect Taxes and Customs (CBIC) chairperson Sanjay Agarwal said in an interview. 

The CBIC chairperson said that increased domestic production of mobile phones have resulted in reducing the import duty on finished mobile phones in the FY25 budget from 20% to 15%, suggesting that similar cuts may be announced in other areas in future as domestic capability builds up.  

Additionally, the import duty on printed circuit board assemblies and mobile chargers, which are components used in mobile phones, has been reduced because mobile phones are covered under the Phase Manufacturing Programme (PMP). 

The Phase Manufacturing Programme refers to a manufacturing model that includes multiple stages, such as design, prototyping, production, quality control, and distribution, to ensure the efficient and high-quality production. 

The import duty on mobile phones was increased to 20% in 2020 to encourage domestic production by way of giving tariff protection to local producers.  

Initially, most components were imported and assembled in the country. However, now that PCBs—making up about 55% of the total cost of mobile phones—are being assembled locally, there has been a reduction in imports of these components.  

As a result of the success of the phased manufacturing programme and the Production-Linked Incentive (PLI) scheme for new manufacturers like Apple, mobile phone production in India has reached ₹4.1 lakh crore, with exports amounting to ₹1.2 lakh crore in FY24, the Chairperson said.

With nearly 31% of mobile phones being exported, this success has prompted a reduction in the import duty on mobile phones from 20% to 15%. 

“If we increase the rate, it will not be for perpetuity. Once the industry is established, the rates will be reduced again to ensure that the industry remains competitive.” 

Agarwal also said that the duty exemption on 25 critical minerals announced in the budget will boost domestic production in sectors like high-end electronics, telecom products, renewable energy, defence and space, where these commodities are used. 

“These minerals are not mined in India, but are essential for manufacturing of many items. So, these mineral have been exempted from duty so that these can be processed in the country for further use in those sectors,” said Agarwal.

While exempting the duty of 25 critical minerals, the government has not touched the duty structure of those minerals for which domestic capacity exists to ensure that domestic industries are not adversely affected. 

“While reducing customs duty rates, one thing which was kept in mind was that we should give impetus to manufacturing; it should result in strengthening and widening of supply chains, and promote the export from the country,” he said. 

The other considerations regarding customs duty changes are addressing any onslaught of cheap imports and correcting anomalies like inverted duty structure, the Chairperson said.

The Chairperson also said that in the case of certain products, basic customs duty has been exempted until 2026 and in certain other cases, till 2029. 

The duty on feathers of birds, which are used as filling material for jackets that are exported, is reduced from 30% to 10%, duty on shrimps feed reduced from 15% to 5% as frozen shrimps are exported from the country.  

Shrimp feed manufacturing is also exempted, benefiting both feed producers and manufacturers.  This aims to boost export options from the country.  Similarly, export duties on leather in different forms have been rationalized based on recommendations from the Council of Leather Exporters, the Chairperson said.

For instance, the import duty anomaly on MDI, a raw material for manufacturing spandex yarn textiles, has been corrected. MDI stands for methylene diphenyl diisocyanate (MDI) and used in the manufacturing of flexible polyurethane foams for bedding, industrial goods, living goods, etc. Spandex yarn is a type of elastic yarn made from synthetic fibers.

Previously, the duty on MDI was 7.5%, while on spandex it was 5%, creating a duty inversion. This has been corrected by reducing the duty on MDI to 5%.

“If cocoa butter can be substituted with shea butter and the import duty on shea nuts has been reduced from 30% to 10%, it means that manufacturers can use shea butter as an alternative to cocoa butter at a lower cost due to the decreased import duty,” he said.  

This reduction makes shea butter a more cost-effective option for production of chocolates, cosmetics, pharmaceuticals and personal care products, among others, the official said, explaining the rationale of customs duty changes in the budget.