Friday, July 10, 2009

Union Budget 2009-10: Mobiles, TV cos to benefit from Customs tweaks

Cheaper TVs, life saving drugs and coral baubles... that’s what the Customs duty tweak in the budget brought home. The government’s decision to lower Customs duty on LCD panels, some life saving drugs and corals will benefit domestic television manufacturers, the pharmaceutical sector and the gems & jewellery industry.

But the bigger benefit came from what the finance minister chose not to do. The government’s decision to stick to the current level of 10% peak Customs duty on non-agriculture products —though entirely expected—comes as a big relief for industry which is having a tough time fighting cheap imports and surviving the slowdown in global demand.

The increase in Customs duty on gold and silver—unpopular with both makers and consumers of gold jewellery—was long overdue as duties last went up in 2005. Gold prices have, since then, more than doubled from Rs 5,000 per 10 gm to Rs 11,000 per 10 gm. The fact that the government expects to gain Rs 800 crore from the move adds further legitimacy to it, as Customs duty collection this fiscal is expected to be substantially lower that the budgetary estimates for the year before.

India has been steadily cutting peak Customs duty with the objective of bringing it down to Asean levels (4% to 5%) by 2010. Duties, which were as high as 150% in 1991, came down to 10% in 2007-08. However, given the current demand sentiment, the government has deferred further lowering of duties.

Sectors which got a reprieve due to the government’s decision to continue with the 10% peak duty include domestic appliances like vacuum cleaners, microwaves, food grinders & shavers, audio & video tapes, CD & MP3 players, ceramic products, metals like iron & steel and metallic products, among others. All these products attract a Customs duty of 10% and will have to take a cut once the peak duty goes down further.

While reduction of import duty on LCD panels from 10% to 5% will bring down prices by up to Rs 3,000 per LCD TV set, the re-imposition of 5% duty on set-top boxes might increase prices, although the long-term objective of the government is to encourage domestic value addition.

The cut in Customs duty from 10% to 5% on influenza vaccine and nine specified life-saving drugs and the bulk drugs used to manufacture them, will serve the dual purpose of making the imported versions cheaper and domestic industry more competitive by reducing input costs.

The government has also decided to continue giving full 4% CVD (counervailing duty) exemption on accessories, parts and components imported for the manufacture of mobile phones for another year. This should help keep mobile phone prices in check.

To incentivise ‘green’ technology, the government has reduced basic Customs duty on permanent magnets—a critical component for wind-operated electricity generators—from 7.5% to 5%.

1 comment:

Union Budget 2009-10 said...

* Budget Estimates provide for a total expenditure of Rs 10,20,838 crore (US$ 211.1 billion) consisting of Rs 695,689 crore (US$ 143.81 billion) under Non-plan and Rs 325,149 crore (US$ 67.31 billion) under Plan registering an increase of 37 per cent in Non-plan expenditure and 34 per cent in Plan expenditure over B.E. 2008-09.
* Total expenditure in B.E. 2009-10 increased by 36 per cent over B.E. 2008-09.