CII suggests 10 per cent duty on capital-goods imports by refiners
Murali Gopalan
MUMBAI, January 4: The Confederation of Indian Industry (CII) has recommended a 10 per cent duty on equipment imports by refineries which presently enjoy zero import duty status. This levy can go hand in hand with the existing 10 per cent countervailing duty on these items, the CII adds.The suggestion was made at a recent CII presentation to representatives of the government who are examining the issue of zero-duty on select equipment imported by refineries. The capital goods sector has maintained that it is already manufacturing over 90 per cent of the items indicated in this list. They fear that this zero duty, if allowed to continue, will severely hit their bottomlines and weaker companies could be out of business. The CII has reiterated that imposition of this 10 per cent import duty will, in no way, be detrimental to the interests of refineries and will, instead, promote healthy competition in the market. The overall impact in cost of new refineries will not exceed 3.5 per cent and may even be
lower. "In this competitive environment, the vendors are likely to quote competitively and the impact will be much lesser," says CII, adding that the levy would actually have a positive impact on revenue. It would also facilitate easy administration and yield revenues to the exchequer. According to the CII, this duty can operate hand in hand with the existing deemed export benefits of special imprest licence/advance intermediate licence, the deemed exports drawback scheme, the scheme for refund of terminal excise duty in the case of fertiliser, and the special import licence at the rate of six per cent of the f.o.b. value (excluding all taxes and levies). The other recommendations include:
Excise clearance under bond on the basis of physical exports instead of refunds as at present in the case of fertiliser;
Exemption on loading of central sales tax and octroi while comparing bids of indigenous and local suppliers. The CII has noted that the Department of Public Enterprises had recently
instructed public sector units to give price preference equal to sales tax and octroi. This can be extended to the private sector also;
Introduction of mandatory tendering, transparent bid evaluation and public bid opening.The rationale for these changes, the CII states, lies in the fact that no country has zero duty on imports of capital goods which are produced locally. In principle, no industry should suffer negative protection and a tariff structure "should promote technology, manufacturing, value addition and employment within the country." The CII presentation specifically states that the present policy environment is only witnessing "unequal and unfair" competition which is discriminatory to indigenous industry. It also impedes the flow of fresh technology and is not conducive to technology upgradation/transfer/development. According to the CII, the current scenario discourages manufacturing, value addition and employment within the country. It also erodes the competitiveness of Indian
industry. One of the biggest concerns of the capital goods industry, the CII states, is that this zero import duty could be extended to other sectors also. Order books of companies have been on the decline and are "drying up", resulting in under-utilisation of capacity. The CII has estimated that on an average, capacity utilisation was down to 50 per cent in 1996-97 and may slide further to 35-40 per cent during the current financial. This could lead to unemployment and adversely impact technology transfer. Due to the strong backward linkages of the capital goods sector, downstream industries, ancillaries and small and medium units would be severely hit, resulting in "supressed demand" for domestic steel, non-ferrous metals, instruments, etc. The CII is of the view that despite its commendable contribution to India's industrialisation, the capital goods sector finds itself at the crossroads. In 1992, customs duty on capital goods for the fertiliser sector was slashed to zero from 15 per cent. The
domestic capital goods industry was granted deemed export status and a 15 per cent price preference to compensate them for the cost disadvantage. However, in May 1995, this price preference was withdrawn even though the factors contributing to cost disadvantages remained. After hearing out the plea by industry, the committee of secretaries recommended a 14 per cent price preference. However, while this was being thrashed out for the fertiliser sector, the refining industry got a shot in the arm through zero import duty on certain equipment. As things stand today, there are 45 broad heads of equipment which qualify for zero import duty though local industry manufactures nearly all of them. The only difference is that the government has imposed a 10 per cent countervailing duty which can be claimed as Modvat credit.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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