Cut in import duty a message to the world, says Finance Secretary | Business News
The government’s decision in the Budget to reduce import tariffs on a number of items is a conscious call to rationalise India’s trade tariffs, which had come under criticism, notably from US President Donald Trump, for being too high. Finance Secretary Tuhin Kanta Pandey on Sunday said that the customs duty changes announced in the Budget will send the right signal to the world and the domestic industry that India is focussed on rationalising and simplifying its import tariff structure.
In an interview to The Indian Express, Pandey said that the income tax relief given to individuals in the Budget can also be seen as an instrument that will help raise investments by households instead of merely resulting in higher consumption.
He said while household investments are often not talked about, they may form a significant share in the economy, and will be more widespread across diverse sectors as opposed to government investments, that may be confined to only a few infrastructure-related sectors.
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Asked about the headwinds to growth from the global tariff war, Pandey said import duty changes in the Budget have been undertaken keeping the global scenario in mind as it will “show to the world that the high (import tariff) rates are gone”. He said that with this round of tweaks in the import duties, the “average tariff rate on industrial goods has come down to 10.6 per cent that used to be more than 13 per cent earlier”, adding that reduced rates will help “promote competition and economic competitiveness of the industry”.
Incidentally, the customs duty changes were announced by New Delhi just before the Trump administration slapped China, Canada and Mexico with high trade tariffs.
In the Budget for 2025-26, presented on Saturday, the government removed seven high customs tariff rates for industrial goods, over and above the seven tariff rates removed in the 2023-24 Budget. For many items such as automobiles, while the basic customs duty (BCD) on imports was reduced significantly, the effective duty rate remained unchanged as the rate was restructured with a higher cess. This tinkering will also lead to states receiving a lower share of import duties as BCD is shared with them, but not cess.
The Finance Secretary, however, underscored that reducing states’ share was not the reason behind the move. He said that lowering BCD rate was important as that is the rate considered globally in computing the average tariff rate.
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“We are doing it temporarily through AIDC (Agriculture Infrastructure and Development Cess). We are showing the world that the high (import tariff) rates have gone. But those who study our schedule deeply, they will say that 30 per cent has been imposed here (AIDC). But, that is only AIDC. BCD is a more permanent structure, AIDC is a temporary thing. In future, we will reduce AIDC or remove it. That will be a moving path,” he said.
“…it is the BCD schedule which is more permanent and that is what is accounted by rest of the world in counting the average tariff rate. Now, the average tariff rate on industrial goods has come down to 10.6 per cent on industrial goods that used to be more than 13 per cent earlier. So, that is the messaging to the world and it is also a signal to our industry,” he said.
On income tax relief to individuals, Pandey said the government does not want to be “prescriptive” about what the taxpayers should do with the additional money in hand. “We are not being prescriptive (about what people should do with their tax savings)… It will be a combination of a consumption and investment multiplier. It will be, in my opinion, more broad-based,” he said.
He said taxpayers have three choices — to consume more, or save more, or invest more. He said the importance of households as investors has been understated. “I think we have not really recognised this but it is a miss… We are always saying either the corporates or the government can invest. Households also invest and this is something which is not normally highlighted… just because they (government and corporates) are big and organised does not mean that households’ investment is not significant, it could be very significant and dispersed,” he said.
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Or alternatively, when a taxpayer chooses to save instead of investing or spending, it may help in improving the deposits ratio in banks, which has been a lingering concern. “Suppose, you don’t choose to spend… banks are looking for savers. You save (with them) and they have to give credit… deposits were a concern… In the present state of our economy, either of the three choices will work. Nothing is lost as far as the economy is concerned by transferring this money back to you (by lowering the income tax burden),” Pandey said.
“Autonomously, sometimes, things work much better than when you are trying to control them. So, my take would be that it (tax relief) may be beneficial overall,” he said.
In a big bonanza to all taxpayers with a special focus on the middle class, Union Finance Minister Nirmala Sitharaman announced a significant cut in tax rates and an increase in rebates. While those with annual taxable income of up to Rs 12 lakh will have no tax liability, those with higher incomes will have savings of up to Rs 1.1 lakh on account of rate rationalisation under the new tax regime (NTR).
