Customs duty cut may hit revenues by Rs 3,000 cr

New Delhi: The Centre is expected to take a hit on revenues amounting to Rs 3,000 crore over the next two months consequent to its move to slash customs duty on cement, various raw materials and capital goods.

The move to cut duty across 11 product categories comes a month before the Union Budget for 2007-08 and is apparently aimed at checking inflation which is on the rise.

The headline inflation for the week ended January 6 had risen to 6.12 per cent, the highest in two years, causing concern to the Government and its supporting parties.

'We were planning to do this anyway on February 28. We decided to advance it because it has the potential to check inflation, especially in the manufacturing sector,' the Union Finance Minister, Mr P. Chidambaram, told presspersons here on Tuesday.

The Finance Ministry on Monday announced removal of customs duty on cement, specified capital goods, project imports and carbon black feedstock. It also cut customs duty on calcined alumina, ferro alloys stainless steel and other alloy steel. Customs duty on primary and semi-finished forms of copper, aluminium, zinc, tin and other base metals have also been reduced.

Not much impact


In the case of cement, the domestic industry sees little impact from the duty cut but feels that the move could have a restraining effect on domestic prices. According to them, Portland cement accounts for only 30 per cent of total production in the country. Besides, the landed cost of imported cement, even after the duty cut, is projected to be higher than the ruling domestic prices. According to industry sources, landed price of imported cement is likely to be around Rs 240 for a 50 kg bag at zero per cent duty, while the wholesale domestic price is between Rs 215 and Rs 225 per bag.

Analysts reckon that the move to lower duty could, however, dampen the plans of cement companies to push through more price increases in the near future.

The Government did not change customs duty on blended cement, which accounts for a majority of the domestic production.

In the case of stainless steel and ferro alloys, the duty cut from 7.5 per cent to five per cent will put all steel items in the same five per cent duty bracket. While this is unlikely to have any major impact on the domestic producers, larger availability of stainless steel could help in checking prices of utensils where this steel item is used extensively, industry representatives said.