THE government on Tuesday announced more measures to combat inflation and discipline industry, which together covered the strategies of saam (kind words), daam (material inducement), bhed (threats and abuse) and dand (penal measures) recommended by Indian tradition to persuade recalcitrants.
The fiscal package includes measures like an export duty on steel and basmati, which is aimed at disincentivising exports, and cut in Customs duties on some products like steel, skimmed milk and butter oil to ease supply crunch and soften prices.
Concluding the debate on the Finance Bill, finance minister P Chidambaram said the UPA government’s policies—fiscal, monetary and financial—were aimed at making growth inclusive.
FM doled out a booty for refinery and IT companies by extending the tax waivers and exempting all categories of electric vehicles from excise duty.
The rejig in the tax structure to counter inflation, however, would leave the exchequer poorer by Rs 1,500 crore. These anti-inflation measures are primarily driven at steel, which contributed 21.3% to current inflation which is at a three-year high of 7.33%.
Proposing the changes to the Finance Bill, which was passed by the Lok Sabha, Mr Chidambaram said: “Currently, steel and steel products contribute about 21.3% of inflation. The objective of containing domestic prices will not be achieved unless we augment the domestic supply/availability of intermediates and finished products. Despite a slowdown during 2007-08, the value of exports of steel items was as high as Rs 26,000 crore in that year. In this background, there is a case for disincentivising the export of steel.”
While the government has taken the approval of the House to impose up to 20% of export duty, it has imposed variable duty at the rate of 15%, 10% and 5% depending on value addition and the consumption of products in the domestic market. Besides, basic Customs duty on hot rolled coils, cold rolled coils has been reduced from 5% to nil. The imports of inputs like zinc, ferro alloys and met coke that are used in manufacture of steel have also exempted from Customs duty. Countervailing duty on TMT bars and structurals commonly used for construction of houses has been exempt to augment supply.
Export duty has also been imposed on basmati at the rate of Rs 8,000 per tonne even though its minimum export price has been reduced from $1,200 per tonne to $1,000 per tonne. The move is expected to cool prices of rice that have risen by 20% over the past one year. Customs duty on skimmed milk powder has been cut from 15% to 5% for a Tariff Rate Quota of 10,000 tonnes per annum. Similarly, Customs duty on butter oil, which is used for reconstituting liquid milk, has been cut from 40% to 30%. While changes in import duty rates will be effective today, changes in export duty will come into effect on the date when the Finance Bill, 2008, receives the assent of the President.