Weaker rupee may help slash import duties

SANTOSH TIWARY & AMITI SEN

NEW DELHI, FEBRUARY 17: Despite stiff opposition from the industry to a general reduction in import duties in the forthcoming Budget, Finance Minister Yashwant Sinha is likely to go in for a downward movement of customs duty rates based on a three-tier graded structure, and justify it on the plank of depreciation in the rupee-US dollar exchange rate.

The rupee-US dollar exchange rate has touched 48.67 per cent at present as against the 43.5 per cent during January 2000, resulting in an increase in the level of protection to the domestic industry competing with imported products. During this period, Sinha, it can be noted, has abstained from effecting any major general cut in customs duty rates. The peak rate of 40 per cent was reduced to 35 per cent in the 2000-01 Budget, and the 10 per cent surcharge was removed in the 2001-02 Budget.

Sources said depreciation in the value of rupee was providing a leeway to the finance minister for maintaining the protection level to the industry at the last year’s level (rupee-US dollar exchange rate in January 2001 was at around 46.3 per cent) even after a customs duty reduction. Though it would be difficult for the FM to base the proposed customs duty reduction on the exchange rate, Sinha could use the depreciation in the rate to justify the duty cuts in the Budget, they pointed out. It may be noted that the protection available to the domestic industry is a combination of the exchange rate of the rupee and the weighted average tariff based on the overall import value of goods, including the exempted items. At any point of time, as explained by the inter-ministerial group on the customs duty structure, different combinations of average customs tariff and the exchange rate can provide the same level of protection to the industry. Which means that in the current scenario, the depreciation of the rupee has raised the protection level, providing the scope for a simultaneous cut in the average tariff so as to bring the available protection at least to the earlier level.