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NC Dalal
The union finance minister, while presenting the budget for 1998-99, had acknowledged that commodity taxation on indigenous goods vis-a-vis imported goods has hampered the progress of the domestic industry. This was mainly due to the imposition of sales tax and other levies on indigenous products which were not applicable on imported ones. In order to provide a level playing field for the domestic industry, the finance minister had proposed the imposition of an additional non-modvatable levy of eight per cent (which was subsequently reduced to four per cent) on imports approximately equal to the burden of local taxes on domestic producers.
However, the levy was also made applicable to imported inputs by domestic capital goods manufacturers. The intention of the honourable minister is commendable, but while bringing the indigenous machinery sector within the ambit of this new impost, the fact that imported inputs subjected to four per cent Special Additional Duty of Customs would also attract sales taxbetween four per cent and 13 per cent besides other local levies during sale of finished equipment, was overlooked. This could not have been the intention of the finance minister because on account of this new levy, the cost on imported inputs would rise by about six per cent which would further add to the price of indigenous machinery causing erosion in the capacity of indigenous manufacturers to compete effectively with finished imported goods. Hence there is a strong case for exempting imported inputs required for manufacture of textile machinery from Special Additional Duty of Customs as is granted to traders, exporters, EPCG licence holders and certain specified industries.
Decelerating domestic demand: The textile engineering industry's share in the supply of machinery and equipment in the overall domestic demand has been declining sharply over the last five to six years. The industry's share in 1991-92 was over 80 per cent which has come down to just over 40 per cent during 1997-98.
Theprogress and survival of any segment of the capital goods industry depends on getting a level playing ground to compete with foreign suppliers of machinery in the domestic market. The industry continues to confront anomalies in customs duties on its imported inputs vis-a-vis import of complete textile machinery.
Prior to the introduction of economic reforms, the duty rate on imported components required for production of indigenous machinery was 15 per cent to 20 per cent lower than the applicable rate to complete textile machinery and further, the industry was able to import its entire component requirements at the same rate of duty fixed for import of components and parts. This was done in order to encourage production of indigenous machinery while equalising the level of indirect taxes borne on both indigenous machinery and imported ones. While restructuring duty rates in the liberalised regime, a uniform basic rate of customs duty viz., 20 per cent was fixed both for complete machinery and dedicatedcomponents. However, a higher rate of duty ranging between 25 per cent and 40 per cent is applicable on imported non-dedicated components and those manufactured out of rubber, plastic, etc., while the rate of duty on steel raw materials is as high as 30 per cent. The above anomalies in customs duty make it very difficult for indigenously produced sophisticated machines to compete against foreign suppliers of textile machinery and discourages domestic machinery manufacturers from bringing in new technology (which usually involves a substantial import of non-dedicated components) and absorbing the same.
There is, therefore, a legitimate case for fixing duty rates on all inputs required for manufacture of textile machinery at least 10 per cent lower than the rate applicable to finished products. Alternatively, the implementation of the recommendations of Raja Chelliah Committee for fixing a descending rate of duty on finished items, components, intermediates and raw materials would resolve the problem.
Thecontinuance of the policy for importing second hand textile machinery has also contributed to a steep fall in the demand for indigenous textile machinery. The industry's overall demand has gone down by at least Rs 700 crore as on June 30, 1998 as compared to the corresponding date of the preceding year. The industry's capacity utilisation has come down to about 40 per cent today. Is this the level playing ground to indigenous machinery manufacturers promised by the government from time to time?
The present policy of permitting import of second hand textile machinery having a minimum residual life of five years should be reversed by banning import of second hand textile machinery completely as is done by our competitor, the People's Republic of China. If this proposal is not feasible, only second hand textile machines which are not more than five years old should be permitted to be imported.
The author is co-chairman of the Federation of Indian Textile Engineering Industry, Mumbai
Copyright ©1999 Indian Express Newspapers (Bombay) Ltd.
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