Tariff hurdles to Indian industry

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Bikky Khosla | 25 Feb, 2014
The last week saw passing of the Interim Budget for 2014-15 and to no one's surprise it has nothing much to offer. The Budget is just for about four months and to enable the present government to carry on with its activities until a new government is formed after the elections. Not much was expected out of it, neither there was much scope for the finance minister to offer . . . positive side or negative side, there was no major surprise either way. If the targets set now cannot be achieved later nobody will be answerable . . . even if the ruling party is re-elected and misses a target, they could easily look for alibi like global slowdown or the US tapering.

The Budget, however, has come with some good steps -- which though look too little and too late -- for the manufacturing sector. First of all, I welcome the proposal to waive or rebate all taxes, Central and State, that go into an exported product. The state taxes blunt the competitiveness of different exports products to a great extent and therefore the Budget proposal can be termed positive. Second, the Budget cuts excise duty on capital goods (as well as on cars & two-wheelers and consumer durables). This decision would have some marginal positive impact in the short-term as the duty cut is applicable to June 30.

As far as the first point is concerned, I want to add that removing or at least streamlining the different tariffs imposed by most of our states on movement of goods across their borders is very important for improving the business environment in the country and our policy makers should stop turning a blind eye to this problem. No doubt it will be politically challenging but unless we do this, as China did 17 years ago to do away with these types of tariffs, it will not be possible for us to improve internal movements of goods for manufacturing within the country. Removing these taxes, which lead to inefficiencies in production, will also help enhance competitiveness of the industry.

I think GST needs to be implemented at the earlier. This will bring an end to dozens of taxes like central sales tax, state sales tax, entry tax, Octroi, CENVAT, etc. and, as a result, our businesses will not only get rid of the confusion created by the present tax regime with multiple authorities and different jurisdictions levying multiple taxes on different aspects of a business, but will also be able to reduce production costs in many cases. On the other hand, as GST will be easier to implement, this will in turn boost tax collection. So, the earlier the Centre and states come towards an agreement, the better it is for the Indian industry and the economy. The next government should press ahead with this objective.

I invite your opinions.