The budget, to be announced next month, is expected to impose duties across a wider range of project imports, ministry sources revealed. Currently the barrier level for project imports is not uniform with duties placed unevenly for imports for different industries.

The domestic capital goods industry has for long been calling for a level field since it pays a host of taxes comprising excise, central sales tax, state sales tax and other state-level taxes as octroi on its raw materials. The finance ministry is buying this argument up to a point as it is convinced that domestic industry is getting hurt. It feels that it would be absolutely fair if CVD is imposed to the extent of at least the aggregate level of sales tax and octroi.

The capital goods industry has been arguing that the level of negative protection is as high as 30per cent but the ministry feels that this may be inflated by about 10 percentage points. Notwithstanding this, the finance ministry agrees that since the domestic capital goods industry has been affected by project imports the balance needs to be somewhat restored.

Projects imports by the petroleum and fertiliser sectors are currently allowed duty-free. The ministry is weighing the option of putting up some barriers for these industries where machinery is manufactured domestically. Domestic industry has argued that most countries protect their home industries against imports by giving them relief from domestic taxes to compete against imports. The government, therefore, cannot adopt a policy of annihilating the Indian capital goods industry.

As projects funded by multilateral agencies give a price preference of about 15 per cent to domestic industry, the ministry feels that the plea from industry cannot be ignored.

The ministry feels that when general tariff levels were high domestic industry gotadequate protection but with tariffs reduced to low and zero levels across the board, there is no denying the fact of negative protection in the case of the domestic capital goods industry. The ministry is also of the opinion that project suppliers resort to substantial mark-ups for sectors where the duty is zero. This is done as they are aware of cost disadvantages to Indian suppliers.

The ministry is also considering the possibility of improving benefits for omestic industry under the deemed exports category. On this score there has been discussion in the ministry as to whether awarding special import licences to domestic industry will improve parity.

The ministry is now taking the view that the swadeshi line of thinking cannot be dismissed completely. The swadeshi argument, it feels, is not about protecting vested interests to the detriment of the country. The ministry feels that India is one of the few nations in the world which has developed a strong capital goods industry which has contributed tonation building. Hence the capital goods industry requires to be given a pride of place and it cannot be weakened. A senior ministry official in the finance ministry said that the tariff structure cannot ignore the industry as it employs a large number of people and its record with regard to absorbing technology and achieving value addition has not been bad at all.

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