Economic Survey calls for lifting countervailing duty on imports

Last Updated: Friday, February 27, 2015, 20:12

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New Delhi: Towards ensuring a successful Make in India programme, the finance ministry`s Economic Survey 2014-15 Friday proposed elimination of exemptions in countervailing duties (CVD) and special additional duties on imports to provide a level playing field to domestic industry.

"Eliminating all the exemptions for the countervailing duty (CVD) will eliminate the negative protection facing Indian manufacturers, and help the Make in India initiative, without violating India`s international obligations," the Survey, tabled in the Lok Sabha by Finance Minister Arun Jaitley, said.

Eliminating this "negative protectionism" to Indian industry, which adds up to Rs.40,000 crore every year, is better than resorting to protectionist measures like higher import duties and local content requirements, it added.

According to the Survey, protectionist measures could be challenged at the World Trade Organisation and go against free trade agreements.

Asking how the anomaly of Indian tax policy penalising domestic manufacturing could be remedied, the Survey said a final solution will be enacting a well-designed Goods and Services Tax (GST), preferably with one internationally competitive rate and with narrowly defined exemption.

"In one stroke the penalties on domestic manufacturing would be eliminated because the GST
(central and state) would automatically be levied on imports to ensure neutrality of incentives," it said.

"In effect, India would be promoting domestic manufacturing without becoming protectionist and without violating any of its international

trade obligations under the World Trade Organisation (WTO) or under free trade agreements (FTAs), it added.

In the meantime as an interim solution, the effect of the GST can be partially simulated by eliminating the exemptions applied to countervailing duties, the survey said.

"The default situation should be an exemptions"free regime. If particular sectors seek relief from the CVD, they should be required to make their case at the highest political level," the Survey said.

Other uncontroversial respo"ses to the `Make in India` challenge consist of improving the business envir`nment by making regulations and taxes less onerous, building infrastructure, reforming labour laws, and enabling connectivity, the survey suggested.

A well designed industrial policy with measures like providing subsidies, lowering the cost of capital, and creating special economic zones could also boost manufacturing, it added.