ALTERNATIVE SCENARIO FOR
TARIFF NEGOTIATIONS
Introduction
The development strategy during the Ninth Five
Year Plan takes cognisance of the need for a more open economy, involving larger foreign
capital inflows and also imports. The process is helping to modernise industry and reduce
costs of production. Priority has been given to reforms in the tariff structure.
The reopening of negotiations for the
agreement on agriculture and industrial tariffs is likely to come up in the near future.
At present, emphasis has been on reduction in average tariff rates without taking into
consideration the peak rates prevailing in some of the developed countries. The present
study aims to suggest an alternative tariff structure for agriculture and industrial
sectors for the discussions. The idea is to develop a rational position in future so that
the dispersion in average tariff rates is also taken into account. In addition, the study
looks at the impact of rationalization of tariff structure in India on the imports and
customs revenue, along with suggestions for inter-sectoral adjustments in tariffs.
Section-I looks at the status of tariff
structure in India. Section-II looks at the status in India in comparison with some
selected countries.
1. Tariff Structure – India
1.1 Present Tariff Structure
The tariff structure in India was highly
complex till early 1990s. The average tariff duty in 1991-92 was 128% along with a very
large number of separate tariff rates across commodity groups and also coupled with many
exemptions. With the initiation of the reforms process, the average tariff rates were
reduced and the structure has been somewhat rationalised.
During 1999-2000, the basic duty rates in
India are mostly 0,5,15,25,35,40, and only 20 commodity groups are in the range of
100-230% (out of 5135 commodities based on 6-digit HS classification). The latter group of
commodities of over 100% tariffs are imposed on certain spirits, beverages, and alcoholic
products; carpets and selected cosmetic items. The average basic import duty is 32.54%,
with a standard deviation (SD) of 13.25 and co-efficient of variation (CV) of 40.71. If a
surcharge of 10% is included on all commodities which have a basic duty of less than 40%,
as imposed in the Budget for the year 1999-2000, the average comes to 34% (SD-13.56,
CV-38.16). The ratio of peak tariff rates to the average ratio comes to around 7 during
the current year. At the same time, the agricultural and industrial average tariff rates
are not markedly different (33-34%), as may be seen in Table-1. The dispersion in
agriculture, as reflected by both SD & CV, is much higher than that in industrial
sector.
Table 1 : Tariff Structure in India |
|
Basic |
Basic+Sur. |
|
1999-00 |
1999-00 |
| All Commodities |
|
|
| Avg. |
32.54 |
34.24 |
| SD |
13.25 |
13.06 |
| CV |
40.72 |
38.14 |
| Agriculture |
|
|
| Avg. |
32.44 |
33.64 |
| SD |
27.67 |
27.5 |
| CV |
85.31 |
81.77 |
| Mining |
|
|
| Avg. |
20.2 |
21.82 |
| SD |
11.26 |
11.7 |
| CV |
55.73 |
53.63 |
| Industry |
|
|
| Avg. |
32.87 |
34.65 |
| SD |
8.88 |
8.61 |
| CV |
27.02 |
24.86 |
| Computed
from Budget Document, 1999-2000 |
1.2 Tariff Structure and Imports
A simple econometric exercise to look
at the relation of imports and tariff structure was undertaken taking value of imports for
the 99 commodity groups at 2 digit HS classification and the average tariff rates
prevailing for these commodity groups from 1991-92 to 1998-99 in India. Various functional
forms were attempted to estimate the relationship between imports (in $ terms) and the
tariff rates during this period. These included imports as a function of tariffs, and
imports as a function of tariffs and gross domestic product (GDP) but the relationship was
weak. In the latter case, the R2 was better but the ‘t’ values were
insignificant for most commodity sectors. This indicated a multi-collinearity problem, as
was also suggested in the high correlation co-efficient between the independent variables
in the variance – covariance matrix. Next, the relative share of imports to GDP as a
function of tariff was attempted in linear and as a double log function.
BASE CASE |
Table 2 |
Regression Results and Imports & Revenue under Existing Tariff Rates |
2
digit
Commodity
Groups |
a |
b |
t
value( b) |
R2 |
Avg.
Tariff
1999-00
(%) |
M/GDP
1999-00 |
Total
Imports
1999-00
US $ million |
Total
Revenue
1999-00
Rs. Crore |
1 |
-7.650 |
0.480 |
3.690 |
0.730 |
34.2 |
0.003 |
0.9 |
1.4 |
2 |
-6.870 |
0.600 |
0.960 |
0.320 |
16.5 |
0.006 |
2.0 |
1.4 |
3 |
0.590 |
-2.255 |
5.230 |
0.901 |
16.5 |
0.003 |
1.1 |
0.8 |
4 |
-1.150 |
-0.760 |
-0.840 |
0.120 |
35.7 |
0.021 |
7.4 |
11.5 |
5 |
-3.060 |
-0.300 |
-4.400 |
0.790 |
15.5 |
0.021 |
7.3 |
4.9 |
6 |
-3.210 |
-0.640 |
-0.950 |
0.150 |
10.1 |
0.009 |
3.3 |
1.4 |
7 |
0.470 |
-0.270 |
-2.870 |
0.620 |
14.5 |
0.777 |
274.6 |
173.7 |
8 |
0.850 |
-0.240 |
-1.830 |
0.400 |
40.0 |
0.965 |
341.2 |
593.9 |
9 |
-1.290 |
-0.340 |
-2.300 |
0.510 |
32.3 |
0.084 |
29.9 |
42.0 |
11 |
-3.480 |
-0.900 |
-1.420 |
0.290 |
38.5 |
0.001 |
0.4 |
0.7 |
12 |
-3.050 |
0.020 |
0.110 |
0.000 |
33.1 |
0.051 |
18.0 |
25.8 |
13 |
-1.340 |
-0.300 |
-1.920 |
0.420 |
33.7 |
0.091 |
32.2 |
47.2 |
14 |
-5.430 |
-0.170 |
-0.980 |
0.160 |
16.5 |
0.003 |
1.0 |
0.7 |
15 |
5.650 |
-1.330 |
-3.040 |
0.650 |
37.1 |
2.328 |
823.0 |
1327.1 |
16 |
-7.900 |
-0.240 |
-0.220 |
0.010 |
40.0 |
0.000 |
0.1 |
0.1 |
17 |
7.850 |
-2.520 |
-2.780 |
0.610 |
31.2 |
0.441 |
155.9 |
211.5 |
18 |
1.900 |
-1.530 |
-3.570 |
0.720 |
39.9 |
0.024 |
8.4 |
14.6 |
19 |
-7.060 |
1.160 |
8.830 |
0.940 |
38.6 |
0.060 |
21.0 |
35.3 |
20 |
3.910 |
-2.898 |
3.350 |
0.740 |
40.0 |
0.001 |
0.4 |
0.7 |
21 |
2.350 |
-0.970 |
-3.280 |
0.620 |
56.8 |
0.209 |
73.7 |
182.0 |
22 |
2.870 |
-1.170 |
-2.420 |
0.540 |
129.8 |
0.059 |
21.0 |
118.6 |
23 |
-1.740 |
-0.250 |
-0.990 |
0.160 |
37.0 |
0.071 |
25.2 |
40.5 |
24 |
1.510 |
-1.460 |
-3.530 |
0.710 |
40.0 |
0.021 |
7.3 |
12.8 |
25 |
0.180 |
0.050 |
0.380 |
0.030 |
29.3 |
1.418 |
501.2 |
639.6 |
26 |
0.060 |
-0.250 |
-3.240 |
0.680 |
8.4 |
0.624 |
220.4 |
80.6 |
27 |
3.650 |
-0.080 |
-0.320 |
0.020 |
24.6 |
29.777 |
10527.1 |
11269.6 |
28 |
1.420 |
-0.070 |
-0.380 |
0.030 |
37.9 |
3.208 |
1134.0 |
1870.5 |
29 |
3.700 |
-0.520 |
-2.310 |
0.520 |
36.6 |
6.219 |
2198.4 |
3503.0 |
30 |
-1.860 |
0.180 |
0.680 |
0.080 |
37.2 |
0.298 |
105.5 |
170.6 |
31 |
1.010 |
0.020 |
0.130 |
0.000 |
25.4 |
2.929 |
1035.5 |
1143.2 |
32 |
1.260 |
-0.490 |
-8.590 |
0.940 |
37.1 |
0.600 |
212.1 |
342.5 |
33 |
-1.870 |
-0.120 |
-0.390 |
0.030 |
43.5 |
0.555 |
196.3 |
371.3 |
34 |
0.470 |
-0.500 |
-13.620 |
0.970 |
40.0 |
0.253 |
89.4 |
155.6 |
35 |
-0.960 |
-0.420 |
-4.020 |
0.760 |
38.5 |
0.083 |
29.2 |
48.9 |
36 |
-7.450 |
0.480 |
1.480 |
0.300 |
38.5 |
0.003 |
1.2 |
2.0 |
37 |
-0.010 |
-0.170 |
-3.480 |
0.710 |
27.5 |
0.564 |
199.2 |
238.3 |
38 |
1.780 |
-0.470 |
-4.670 |
0.810 |
37.3 |
1.082 |
382.6 |
620.8 |
39 |
1.770 |
-0.200 |
-1.570 |
0.330 |
38.5 |
2.829 |
1000.1 |
1674.9 |
40 |
1.900 |
-0.500 |
-4.770 |
0.820 |
38.8 |
1.073 |
379.5 |
640.5 |
41 |
-0.850 |
-0.010 |
-0.300 |
0.020 |
17.8 |
0.415 |
146.8 |
113.6 |
42 |
-3.480 |
-0.360 |
-0.880 |
0.140 |
40.0 |
0.008 |
2.9 |
5.0 |
43 |
-1.470 |
-0.830 |
-2.260 |
0.510 |
18.3 |
0.021 |
7.3 |
5.8 |
44 |
-0.380 |
0.070 |
0.310 |
0.140 |
30.8 |
0.869 |
307.3 |
412.0 |
45 |
-5.570 |
0.170 |
1.950 |
0.430 |
38.5 |
0.007 |
2.5 |
4.2 |
47 |
0.045 |
-0.101 |
0.469 |
0.099 |
5.5 |
0.881 |
311.3 |
74.5 |
48 |
-1.070 |
0.270 |
0.740 |
0.100 |
38.9 |
0.922 |
325.9 |
551.9 |
49 |
-1.440 |
0.170 |
0.370 |
0.030 |
17.4 |
0.385 |
136.1 |
102.8 |
50 |
-0.320 |
-0.190 |
-0.420 |
0.030 |
38.5 |
0.363 |
128.3 |
214.9 |
51 |
-0.970 |
0.110 |
0.480 |
0.040 |
32.6 |
0.556 |
196.6 |
278.9 |
52 |
0.780 |
-0.610 |
-1.620 |
0.350 |
37.0 |
0.241 |
85.3 |
137.1 |
53 |
-0.070 |
-0.720 |
1.590 |
0.330 |
39.2 |
0.066 |
23.5 |
40.1 |
54 |
-0.070 |
-0.240 |
-0.930 |
0.150 |
39.5 |
0.386 |
136.4 |
234.3 |
55 |
3.050 |
-0.930 |
-5.200 |
0.840 |
39.8 |
0.687 |
243.0 |
420.2 |
56 |
0.690 |
-0.770 |
-4.370 |
0.790 |
40.0 |
0.116 |
41.2 |
71.6 |
57 |
4.650 |
-2.580 |
-5.500 |
0.860 |
40.9 |
0.007 |
2.6 |
4.6 |
58 |
0.230 |
-0.780 |
-3.860 |
0.750 |
39.4 |
0.072 |
25.3 |
43.4 |
59 |
4.620 |
-1.480 |
-7.990 |
0.930 |
40.0 |
0.432 |
152.7 |
265.7 |
60 |
-1.600 |
-0.520 |
-3.010 |
0.640 |
40.0 |
0.030 |
10.5 |
18.2 |
61 |
-1.560 |
-0.920 |
-3.030 |
0.650 |
40.0 |
0.007 |
2.5 |
4.3 |
62 |
-1.430 |
-0.990 |
-1.760 |
0.380 |
40.0 |
0.006 |
2.2 |
3.8 |
63 |
-1.730 |
-0.080 |
-0.270 |
0.010 |
39.4 |
0.132 |
46.7 |
80.0 |
64 |
-1.950 |
-0.150 |
-0.870 |
0.130 |
40.0 |
0.082 |
28.9 |
50.3 |
65 |
-0.040 |
-1.960 |
-3.720 |
0.730 |
40.0 |
0.001 |
0.2 |
0.4 |
66 |
-0.330 |
-0.760 |
-3.070 |
0.650 |
40.0 |
0.044 |
15.4 |
26.8 |
68 |
-1.500 |
-0.230 |
-2.620 |
0.580 |
39.9 |
0.096 |
33.8 |
58.7 |
69 |
0.980 |
-0.250 |
-1.960 |
0.440 |
37.3 |
1.078 |
381.1 |
618.7 |
70 |
-0.360 |
-0.250 |
-2.230 |
0.500 |
40.0 |
0.277 |
98.1 |
170.7 |
71 |
1.690 |
0.290 |
2.370 |
0.530 |
29.5 |
14.456 |
5110.4 |
6549.1 |
72 |
2.360 |
-0.200 |
-1.820 |
0.400 |
37.5 |
5.129 |
1813.3 |
2961.0 |
73 |
0.680 |
-0.100 |
-1.100 |
0.190 |
38.5 |
1.370 |
484.4 |
811.2 |
74 |
2.050 |
-0.360 |
-6.540 |
0.900 |
38.5 |
2.087 |
737.8 |
1235.7 |
75 |
-0.540 |
-0.170 |
-1.730 |
0.370 |
16.5 |
0.362 |
127.9 |
91.8 |
76 |
2.690 |
-0.900 |
-5.650 |
0.860 |
27.5 |
0.746 |
263.8 |
315.6 |
79 |
0.760 |
-0.580 |
-1.980 |
0.440 |
38.5 |
0.257 |
91.0 |
152.4 |
80 |
0.480 |
-0.530 |
-3.910 |
0.750 |
27.5 |
0.279 |
98.6 |
118.0 |
81 |
-0.840 |
-0.260 |
-3.960 |
0.760 |
37.9 |
0.168 |
59.3 |
97.8 |
82 |
0.230 |
0.410 |
7.090 |
0.910 |
29.6 |
5.047 |
1784.1 |
2295.7 |
83 |
-0.880 |
-0.450 |
-3.290 |
0.680 |
40.0 |
0.079 |
27.9 |
48.5 |
84 |
5.330 |
-0.680 |
-15.180 |
0.980 |
28.2 |
21.291 |
7527.0 |
9246.5 |
85 |
3.430 |
-0.480 |
-5.180 |
0.840 |
32.4 |
5.820 |
2057.4 |
2895.2 |
86 |
-2.410 |
0.140 |
0.260 |
0.010 |
35.3 |
0.148 |
52.3 |
80.3 |
87 |
1.485 |
-0.317 |
2.916 |
0.680 |
39.5 |
1.377 |
486.8 |
835.8 |
88 |
2.224 |
-0.559 |
1.345 |
0.475 |
16.7 |
1.918 |
678.2 |
491.5 |
89 |
-1.200 |
0.130 |
0.520 |
0.050 |
16.8 |
0.435 |
153.6 |
112.2 |
90 |
0.710 |
0.020 |
0.320 |
0.020 |
31.2 |
2.179 |
770.3 |
1044.4 |
91 |
-2.000 |
-0.144 |
1.497 |
0.310 |
35.7 |
0.081 |
28.6 |
44.4 |
92 |
-3.05 |
-0.57 |
-1.08 |
0.19 |
38.5 |
0.006 |
2.1 |
3.5 |
93 |
-3.85 |
-0.71 |
-1.46 |
0.3 |
40.0 |
0.002 |
0.5 |
1.0 |
94 |
3.7 |
-1.67 |
-5.6 |
0.86 |
40.0 |
0.085 |
30.2 |
52.5 |
95 |
2.67 |
-1.44 |
-6.3 |
0.89 |
27.5 |
0.122 |
43.2 |
51.7 |
96 |
-0.92 |
-0.29 |
-4.91 |
0.83 |
40.0 |
0.137 |
48.3 |
84.1 |
97 |
-4.17 |
-0.78 |
-1.64 |
0.35 |
34.3 |
0.001 |
0.3 |
0.5 |
98 |
1.75 |
0.04 |
0.23 |
0.01 |
39.2 |
6.664 |
2356.0 |
4018.5 |
99 |
-0.63 |
-0.14 |
-0.51 |
0.05 |
0.0 |
0.533 |
188.3 |
|