“It is insufficiently appreciated that India’s border tax arrangements undermine Indian manufacturing and the “Make in India” initiative. Eliminating exemptions in the countervailing duties (CVD) levied on imports will address this problem.” Elaborate. (200 Words)
Countervailing Duty (CVD) is imposed on the imports to neutralise the effect of excise duty which is imposed on domestic manufacturers which make them more expensive as compared to imported products.
In absence of CVD the imported products which are mostly zero-rated in the source country, becomes cheaper than the domestic products which are relatively costlier because of excise duty. This harms the domestic industry.
In other scenario of eliminating both the excise duty and CVD, the domestic products still costs higher because of input taxes like octroi, sales tax etc. in domestic manufacturing which is not there in case zero-rated imported goods, thus harming domestic manufacturing.
Other arguments that providing CVD exemptions help domestic manufacturers by way of cheaper imported inputs is countered by experts that CVD on inputs can always be claimed as input tax credit.
Also saying that CVD exemptions are provided for some products as there is not domestic manufacturing of the product (or to make domestic units more competitive) is incorrect as it may be precisely because of CVD exemptions that domestic manufacturing in such products is not taken up as there is no level playing field for the latter in the first
place.
Therefore, it would be in interest of the domestic manufacturers and the ambitious ‘Make in India’ initiative of the government, to eliminate exemptions in CVD.