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The duty cuts announced by the government may have been motivated by the need to generate voter enthusiasm in the run-up to the elections. However, according to most economists, they also constitute substantial reform. Yes, some of these thinkers do have some misgivings over special rates for particular sectors. On the whole, though, they echo ICRIER’s Arvind Virmani: He’s satisfied with the reduction of peak customs duty and the removal of the 4% special additional duty.
Overall, they felt that the government is moving ahead with the tax reform programme, living up to the commitment made by the NDA government’s finance ministers. Almost everybody ET spoke to described the cuts as a positive development. However, there were those who did criticise a few of the cuts.
Welcoming the measures, ICRA economic advisor Saumitra Chaudhuri said: “Slashing import duties at one stroke helps curb domestic inflation, takes some of the upward pressure off the rupee and makes the important adjustment towards ASEAN levels (below 10%), which is essential if we want the FTA with South-East Asia to work.�
There was an urgent need to reduce duties, and the fact that the government has finally come through on this is extremely welcome, he added.

Crisil chief economist Subir Gokarn said: “The reductions are consistent with the broader context of tax reform. They are also consistent with our commitment to bring down tax rates to the Asean level, given our commitment to the WTO on IT products and the Kelkar committee recommendation on indirect taxes.�
Mr Chaudhuri noted that the high import tariffs have been making industrial intermediates costly, especially given the strengthening of international commodity prices over the past one-and-a-half years. This has been fuelling domestic inflation rates.
“Inflation of 5.6% is very high if we remember that in most of the world, inflation is around 2%. Indian producers were thus losing competitiveness, given that the rupee has been and is likely to continue to be strong.�
Arvind Virmani, director & chief executive of ICRIER said that he is happy that the peak tariff has been reduced from 25% to 20%. “The finance minister had committed a few years ago that he would bring down peak duties to 20% by ’04-05, and I am happy to note that he has kept his commitment. The next target should be to bring down these tariffs to a level of 10% over the next two years,� he added.
Mr Virmani further stated that although he did not approve of special duties and exemptions in general, the concessions given to the power sector and project imports were justified, given the low rates of investment in the country. He also felt that a move towards a uniform rate of 15% for capital goods would be more appropriate.

Mr Gokarn said that the reduced duties on project imports may stimulate growth. The Centre’s next milestone should be to bring down the peak tariffs to a level of 10% in two years, he added. Mr Virmani said that the special reduction of duties on mobiles and computers does not augur well for a good tax system. A uniform Cenvat rate of 15-17% that encompasses all goods and services would be more appropriate.
On ATF, the real issue is the sales tax imposed by the states and not excise.