Budget 2025: Sitharaman may introduce a new customs playbook; tweaks to turn tariffs into treasure

The finance ministry is considering eliminating customs duty exemptions on several imported components in the upcoming budget to enhance local manufacturing, reported ET Bureau on December 24, 2024. As per the report, these components include bulk drugs used in insulin production, raw materials for lab-grown diamonds, plastics for optical fibre, LED and LCD TV panel parts, and equipment for coal mining and power generation.

The Ministry of Finance is reviewing 31 products where conditional customs duty rates, currently at 0-5%, and exemptions are set to expire by September 2025. Relevant ministries and industry stakeholders have been consulted to evaluate planned investments, domestic production, and capacity.

An official noted, “The review process is underway to decide whether these exemptions should continue or lapse. Inputs from the industry have been sought.”

Tweaks to turn tariffs into treasure?

The move aligns with the government’s broader strategy to phase out conditional exemptions, part of its “Make in India” initiative to boost the domestic industry and increase India’s share in global value chains.

In previous budgets, customs duties on ferro nickel and blister copper were removed to reduce steel and copper production costs, while duties on X-ray tubes and flat panel detectors for medical X-ray machines were lowered under the Phased Manufacturing Programme for medical devices. Key sectors under review include life-saving medicines, chemicals for telecom-grade optical fibres, and components for renewable energy and transport. Experts highlight the need for a balanced approach, particularly for goods crucial to MSMEs. “The government will assess the impact on ‘Make in India,’ focusing on value addition within the country,” said Pratik Jain, partner, PwC India. Geopolitical dynamics are also influencing the review, especially concerning imports from the US. Bipin Sapra, partner at EY, stated, “Phasing out conditional customs notifications will support local industries in manufacturing products currently imported. Industries have had time to prepare for this transition.”

However, certain concessions might remain where imports do not threaten domestic production. A representative from the textile industry remarked, “Concessional duties can be allowed as long as imports do not harm local production.”

The review is expected to refine India’s trade policies, ensuring they align with the country’s manufacturing goals while safeguarding crucial sectors.