With an aim to reduce imports along with spurring domestic production, Finance Minister Nirmala Sitharaman has proposed to raise custom duty on over 70 items in the full Budget 2019-20. Traditionally, the governments adjust custom duties to protect domestic industry and sometimes to allow cheaper raw material imports to spur manufacturing sector. In India`s case, it is more a case of customs duty adjustment "to provide level playing field to domestic industry".

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"On the Customs side, my proposals are driven with the objectives of securing our borders, achieving higher domestic value addition through make in India, reducing import dependence, protection to MSME sector, promoting clean energy, curbing non-essential imports, and correcting inversions," Sitharaman said in her maiden Budget speech on Friday.

"Make in India is a cherished goal. In order to provide domestic industry a level playing field, basic customs duty is being increased on items such as cashew kernels, PVC, vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cables, CCTV cameras, IP cameras, digital and network video recorders etc. Also, exemptions from custom duty on certain electronic items which are now being manufactured in India are being withdrawn.

"Further, end-use based exemptions on palm stearin, fatty oils, and exemptions to various kinds of papers are also being withdrawn. To encourage domestic publishing and printing industry, 5 per cent custom duty is being imposed on imported books."

Abhishek Jain, Tax Partner, EY India, said: "Customs duty increase on various products imported by the automotive industry should help foster Make in India for these products but may adversely impact the already sluggish auto market; increased rate of duty for import of completely built cars should as well help boost manufacturing of these cars in India..." 

"...increased BCD rate on various goods for electronic industry like indoor and outdoor units of split air conditioner systems, etc would as well incentivize domestic manufacturing of these goods; increase in road and infrastructure cess on import of petrol and diesel would further increase costs of these goods and this having a severer impact for most businesses to which credit of this is also not available..."

"...increase in basic customs duty on import of optical fibres and cables should also help foster the domestic manufacturing industry of these products but may have an adverse impact for the telecommunication sector; increase in basic customs duty rate for various electronic goods like loudspeakers, digital video recorders, etc should encourage domestic manufacturing of these goods; retrospective exemption for service tax on liquor license would aid in reducing costs for liquor industry, as service tax was generally a cost for these businesses," Jain said.

Rashmi Deshpande, Partner, Khaitan & Co said: "The budget, from an indirect tax perspective, provides a positive reinforcement to the `Make in India` initiative with customs exemptions being withdrawn on several imported electronic products, palm stearin and fatty oils for which there is a developing Indian market."

"This coupled with the reduced BCD rates on capital goods used in the electronic industry will set pace for increased manufacturing in India.

"With an eye to boost clean transportation, the BCD rates on electronic vehicles has been slashed. This ties in with the larger initiative of the government to boost cleaner fuels."