Union Budget 2021: Government Increases Customs Duty on Specific Auto Parts to Stimulate Local Manufacturing

In a bid to support domestic manufacturers, the Government of India proposed a raise in customs duty on some imported auto components which are widely used in the automobile sector. In the budget 2021, the Finance Minister Nirmala Sitharaman proposed an increase in the customs duty of various parts such as ignition wiring sets, safety glass and parts of signalling equipment to 15 percent that will come into effect from February 2.

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Presently, the automobile parts get imposed with customs duty between the range of 7.5 percent to 10 per cent. While presenting the Union Budget, Finance Minister Nirmala Sitharaman said, "We are raising custom duty on certain auto parts to 15 percent to bring them on par with the general rate of auto parts.” The Government of India introduces this change in customs duty to create equal opportunity for the benefit of micro, small and medium enterprises (MSMEs) and other local manufacturers. In addition to higher custom duty, the auto parts will also be imposed with an agriculture infrastructure and development cess of 5 percent.

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Automotive Component Manufacturers Association President Deepak Jain said, "The raise in basic customs duty on certain auto components will stimulate local manufacturing of specific parts and items. It is also a good move and heartening that the government has doubled the budget outlay for the MSME sector in comparison to the last year.” The auto component sector is widely dominated by MSMEs and this move will offer them the essential succour as the sector is in the recovery stage, he added.

Moreover, the government has repeatedly stressed that these moves need not be labelled as a move towards protectionism in general. It is not aiming this increase on imports as a whole but rather at specific products that are believed to be hindering local production of goods that already exist in large quantities or can easily be produced. Additionally, in some cases, it is expected to also rectify any inverted duty formations due to which raw materials cost more than the finished products. On the whole, the entire budget and the move to increase the customs duty for certain imported auto-parts suggests that India is moving towards an era of greater self-reliance.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.