Don’t Reduce Customs Duty On Manufactured Goods: FICCI

Surge In Imports Affecting Domestic Manufacturers

Concerned over the slow growth or deceleration in the manufacturing sector in the current year, FICCI said that the customs duty on manufactured goods should not be reduced further in the coming budget. FICCI said that the strong rupee has not only affected the manufactured goods’ exports but also led to surge in imports of manufactured goods in the last two years. “Rupee appreciation has made the imports cheaper and increased the competition for domestic manufacturing sector which is already suffering due to slow growth in exports and higher interest rates”, said Mr Habil Khorakiwala, President, FICCI.

Any further custom duty reduction would neutralize the impact of measures implemented for reviving the growth of manufacturing sector, FICCI pointed out. The decline in the manufacturing sector growth is also attributed to the increase in interest rates in recent months that has reduced the demand for consumer goods, as a result of which consumer durable sector witnessed a negative growth (-1.28%) in the first half (April–September) of current year, FICCI noted.

FICCI observed that a strong growth in imports as a result of Rupee appreciation has been witnessed in some manufacturing sectors that have slowed down the growth in these manufacturing sectors. Imports in last two-year have grown very fast in sectors like Machinery, Machine Tools, Transport equipment, Iron & Steel, Non-ferrous Metals, Paper Manufactured and Manufacture of Metals.

For the period April-July 2007 also, import of some of the important manufactured items like Iron, Steel, Paper, Machine Tools, Transport equipment, Non-electrical machinery have witnessed very high rate of growth as compared to last year for the same period.

Commenting on the corporate sector performance, FICCI noted that the performance of the manufacturing sector was the poorest amongst other sectors like services and mining for the July-September 2007 quarter. Net sales of manufacturing sector grow by 9.2% in quarter ending September 2007, whereas it witnessed a growth of 24% in services and 15% in mining.
In such a scenario, it will not be appropriate to reduce the custom duty on manufactured items in the coming budget which would lead to further surge in imports of manufactured goods, FICCI emphasized.

FICCI further said that inadequate growth in the manufacturing sector would have its adverse impact on employment generation. In order to achieve inclusive growth, manufacturing sector has to absorb large number of people who would be moving out of agriculture in pursuit of higher incomes. Manufacturing sector will have to carry the major burden of increasing employment opportunities in the Eleventh Plan directly or indirectly, said FICCI. For this it is important that manufacturing sector grows at a sustainable rate of over 12% per annum.

Already, FICCI noted, that there are signs that manufacturing sector’s share in employment has fallen marginally over the period, as per the latest data available. According to NSS, the share of manufacturing sector declined from 12.1% in 1999-2000 to 11.7% in 2004-05 in employment, whereas that of service sector continues to increase. In view of the low elasticity of employment of manufacturing sector (Capacity to absorb workforce with growth), it is important that the sector grows consistently at a high rate of over 12% per annum for adequate employment generation in the sector and increasing its share in the employment, FICCI emphasized.

FICCI said that already India has reduced its peak tariff from 25% in 2003-04 to 10% in 2007-08 which was the reflection of its radical unilateral tariff liberalization. Further duty reduction could significantly slow down the growth in manufacturing sector by increasing competition for domestic manufacturers.