Finance Minister P Chidambaram is expected to cut peak customs duty from 12.5 per cent to 10 per cent in the Budget, in line with the government's commitment to bring the rate on non-agricultural products to the ASEAN tariff level as also to contain the rising prices.
It would not be surprising if pressed by Congress high command and UPA partners the finance minister announces further cut in peak customs duty on certain products like edible oil, capital goods and manufacturing products to tame the prices, the sources said.
The government reduced customs duty on cement, steel, maize, edible oil and other capital goods to check inflation that touched 6.73 per cent early this month.
With forex reserves touching $185 billion, some policy makers have recommended that by bringing down customs duty ample forex reserves could be 'productively' used to check prices besides forcing the industry to cut prices in the domestic market.
Chidambaram had cut down peak rate for non-agricultural products from 15 per cent to 12.5 per cent in 2006-07 Budget. In previous Budget too, he had gone in for a reduction of the peak rate for non-agricultural products from 20 per cent to 15 per cent.
The industrial chambers are hopeful that this year also he could announce a cut in customs duty by at least 2.5 per cent.
Considering customs duty rate between 5-10 per cent in ASEAN countries, India is moving towards lower customs duty rates.
On certain items like footwear, travel goods, perfume and rose water the effective duty is over 36 per cent as it includes 16 per cent countervailing duty, special additional duty and education cess.
In view of the sluggish growth of mere 6 per cent in excise collections during April-January 2007, finance minister may not be able to tinker with excise duty rates. He may rather prefer to cut down customs duty to force the industry to fall in line, sources said.
They said Budget may cut in customs duty on imported cars from 60 per cent to 50 per cent, imported liquor, electronic items, raw material besides petrol and diesel.
With economy projected to grow by over 9 per cent for the second consecutive year and revenue collections overtaking projections, there is enough room for finance minister to bring down peak customs duty by 2-2.5 per cent this year.
Unlike sluggish growth of 6 per cent in excise duty, customs duty collections have grown by 34.3 per cent to touch Rs 70,872 crore (Rs 708.72 billion) during April-January 2007 period, against Rs 52,768 crore (Rs 527.68 billion) year-ago period.
