A week ago, Narendra Modi gave the plenary address at the World Economic Forum in Davos, Switzerland. He offered what his audience wanted to hear: a strong defence of globalisation. In fact, it might have been a little too strong: the prime minister actually equated economic protectionism with terrorism. Taking what was read as a dig at the anti-free trade stance of President Donald Trump of the United States, Modi said, “Many countries are becoming inward focused and globalisation is shrinking and such tendencies can’t be considered lesser risk than terrorism or climate change.”
But like the consummate politician that he is, Modi ensured there was a healthy gap between his words and actions. So, even as he railed against protectionism in Davos, his finance minister in Delhi was putting together a plan to do exactly that. The Union Budget for 2018-’19, presented on Thursday, put up a customs duty wall to exports, calling it a “calibrated departure” from earlier efforts to reduce import barriers.
More expensive phones
Most significantly, mobile phones will now attract a customs duty of 20%, up from 15%. This will make costlier high-end phones like those sold by Apple and Google, which import their handsets from China. This tax will not impact mobile phones assembled in India, which account for the vast majority of handsets sold in the country, but the duty imposed on phone parts will and that has risen to 15% from 7.5% or 10% earlier. Even the parts used to make mobile phone chargers will now attract a duty of 10%; they came duty-free earlier.
Smartwatches will attract a duty of 20%, up from 10%, and same is the case with furniture and furniture parts. The duty on automobile parts has risen from 7.5% or 10% last year to 15% and on perfume from 10% to 20%.
Protectionism is more severe for the agricultural sector. Imported juices except orange juice will attract 50% duty as against 30% last year while vegetable oils will be taxed at 35% or 30% as compared to 20% or 12.5%.
Nehru redux
Why did Arun Jaitley ignore his boss’ pronouncements at Davos and indulge in this sort of protectionism? The logic presented by the finance minister was similar to that of the Nehruvian state just after independence: shelter local industry and give it space to grow. “There is substantial potential for domestic value addition in certain sectors like food processing, electronics, auto components, footwear and furniture,” Jaitley said in his Budget speech. The increase in customs duty was thus meant “to further incentivise the domestic value addition and Make in India in some such sectors”, which in turn would “promote creation of more jobs in the country”.
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