Why are imports heavily taxed in India?

Finance Minister Nirmala Sitharaman proclaimed in February, the imposition of taxes on imports as part of the 2020-21 budget. The budget states that the tax on electric appliances and cooking utensils will increase by 20 percent and furniture imports by 20 percent to 25 percent.

On what goods were the tariffs increased?

Similarly, the import duty on electric vehicles has also increased. The tax on imports on buses and trucks has been increased to 40 percent from 25 percent in the past. Similarly, taxes on toys have been increased to 60 percent, three times the previous budget. The import duty on medical equipment has been increased to 5 percent.

Which is India's largest importer?

Oils, fuels, bituminous materials, electrical equipment, jewellery, and nuclear reactors, machinery, mechanical equipment, and chemicals are India's major imports. China is the largest exporter of these goods to India, accounting for 16 percent of India's imports. Other import partners of India include the US, UAE, Saudi Arabia, and Switzerland.

India imports $ 70 million worth of products from China. The value of these imports in 2018-19 was $ 76 million.

To promote indigenous organisations

Imports were heavily taxed to promote local and domestic industries. These policies are called Import Substitution Industrialisation (ISI). In developing countries like India, there is a need to protect enterprises from international trade wherever possible. That is why the government has imposed high taxes on imports. The policy was first introduced in 1991 to promote local markets.

Currently, Micro and Small Industries (MSMEs) in India have started setting up local supply chains. So that production costs will soon be reduced. Due to this, the products are likely to become available at a lower price. The government has imposed high taxes on imports to give priority to Make in India and protect MSMEs.

Let us know the whole process through an example ...

The government has announced a scheme called 'Make in India' aimed at increasing cell phone manufacturing in India. Suppose the method's announcement reveals that it is raising taxes on imports of cell phone parts by 10 percent as soon as it is announced. These parts are being imported from China to date. With the increased tax, mobile rates are likely to rise sharply, and purchases will likely fall. With this, we want the mobile manufacturing companies to focus on alternative ways and start a program to manufacture mobile spare parts locally, leading to the growth of domestic industries and job opportunities. This is the main reason why the government has increased the tax on imports.

Increasing local supply chains will not only encourage the growth of Indian companies and manufacturing units. Still, they will also benefit companies coming from abroad and setting up manufacturing units in India. Even India is likely to become an investment hub in the future as the local supply chain grows. According to a report, India has allocated $ 6 billion to promote domestic manufacturing and attract investment.

What happens if domestic products are promoted?

As well as promoting domestic products, there is no need to import high demand goods from other countries. The rest of the income can be used for further development works. Many companies will stop exporting to India due to the increase in import duty. However, there is a possibility of a deficit due to the cessation of imports. This must be filled as soon as possible; otherwise, there is a massive demand for goods, and prices are likely to rise sharply. To meet the demand for certain products from abroad, imports should be taxed periodically rather than all at once.

Economic policies around the world are rapidly changing. Many industrial companies and manufacturing units are facing uncertainty due to financial tides. Under such circumstances, there is a need to increase tariffs on imports and protect domestic industries.

Corona puts industries at a loss

There is also a need for institutional autonomy to ensure that the coronavirus epidemic's economy recovers. Villages are the lifeblood of India. The same principle applies to industries. According to a report, the current turnover of rural sectors is Rs 88,000 crore. It is likely to touch Rs 5 lakh crore in the next two years. Also, small scale industries employ about 11 crore people in the country. There is a need to encourage local initiatives by imposing taxes on imports to create more such sectors and create youth jobs.

It is well known that in India, the lockdown is imposed due to corona. The industrial sector is also one of the many industries that are suffering due to this lockdown. Small enterprises, in particular, are suffering severely. In addition to declining productivity due to these hardships, millions of employees' futures are in a state of gloom. There are about 6.9 crore micro, small and medium scale industries in India. Industry sources claim that the supply chain was disrupted entirely due to the lockdown imposed due to the coronavirus crisis. About 30-35% of India's GDP comes from MSMEs.

That impact also fell on the economy as the current situation has alarmingly damaged the supply chain. Corporate turnover is steadily declining. If this situation is to be rectified, local industries need to be provided with government assistance. That is why the government has increased taxes on imports and given a boost to local initiatives.

Import duties on more goods soon

The government is likely to increase import duty on more goods soon. There is also a chance that import tariffs on non-essential luxury goods will increase further. This has been the pattern followed by the government for the last four years. High taxes on luxury items because the number of people who use them is limited.

Due to the increase in import tariffs, many international companies are interested in investing in India to offer their goods at lower prices. This is because job opportunities for the youth will increase, and the government will get tax revenue. Similarly, in the future, India will reach the level of exporting to other countries, and the micro, small, and medium enterprises in the country have plenty of opportunities to access modern technology. These factors contribute to raising government revenue as well as raising the living standards of the people.

Also, India currently imports more than it exports. As a result, the trade deficit continues to grow year-on-year. Imports need to be regulated to prevent this. That is why the government has decided to increase import tariffs.

The government has taken steps to promote exports on the one hand while imposing tariffs on imports on the other. It has already taken several critical steps in this regard. As part of this, the MSME policy will be changed soon.

Imports are currently declining due to measures being taken by the government. According to a report, imports are expected to fall by 18.2 percent in the current financial year.

No country in the world makes every effort to reduce the prices of their products. Entirely dependent on exports and imports. Each country makes efforts to achieve self-sufficiency in different sectors, focusing on the supply chain of low-cost production. It also requires them financially. No country wants to depend on another country. India also has a similar view. That is why the government has called for Atma Nirbhar. Self-sufficiency does not mean that India is no longer economically dependent on other countries at the international level. It only imports as much as it needs. The Make in India program has received national and international acclaim. Already many are focusing their investments on domestic manufacturing. India is taking steps to achieve self-sufficiency by promoting domestic manufacturing.

Imports should be reduced, and exports should be increased

However, imports not only hurt a country's economy, but they also broke their self-sufficiency. As well as severely damaging domestic industries. With this, job opportunities will decrease, and the country's economy will collapse. That is why the government has increased tariffs on imports.

Also read:

How Many Types of Taxes are There in India?
What Is Service Tax In India? Examples and more.
The Indian Import-Export Scene
Why are Small Businesses Important to the Community?

FAQs

Q. Which products in India are subject to high import duty?

Ans: Although import tariffs on emergency goods are currently low in India, import tariffs on luxury goods are high. Import duties on electronics, TVs, ACs, and mobile manufacturing parts are presently high. It is likely to increase import tariffs on more products in the coming period.

Q. Does raising tariffs on imports benefit the common man?

Ans: There is profit. Higher tariffs on imported goods may increase the price of goods. However, the goods are made locally, and these are made available to the consumers at a low cost.

Q. What are the main benefits of increasing import duty?

Ans: Raising import tariffs will reduce imports and provide support to local companies. As well as increasing job opportunities for the youth. As well as reducing the trade deficit, the country will achieve self-sufficiency.

Q. Increase import duty on all goods?

Ans: It is not right to increase the import duty on all goods. Import duties on emergency goods are required to be limited. There is a need to provide higher tariffs on luxury goods.

Q. What are the significant benefits of raising import tariffs?

Ans: The main benefits of raising import tariffs

1. Encourage local industries
2. Job opportunities for youth
3. Country self-sufficiency
4. Increase investment
5. Opportunity to become a global manufacturing hub
6. Availability of affordable goods to the common man
7. Increase productivity