Budget 2020: Is Modi’s liquor import curb a hint towards protectionist budget?

Ashish Pandey
Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21

Budget 2020 India: The proposed move to curb the sale of duty-free liquor and cigarettes at airports not only shows the Narendra Modi-government's anti-trade stance but may also be a precursor to a protectionist Union Budget 2020, due in less than two weeks. "The possibility of further increase in customs duties, as well as reducing some duty-free imports, certainly lines up with the Modi government’s anti-trade positioning," Richard Rossow senior adviser and Wadhwani Chair in US-India Policy Studies at the Washington-based Center for Strategic and International Studies, told Financial Express Online. Moreover, the move may be a hint for the upcoming Budget. "I fully expect the 2020 Union Budget to have some protectionist measures, as with other recent Budgets," Richard Rossow said.

According to news reports, the commerce ministry has proposed a curb on the sale of liquor by half to one litre and a ban on cigarettes. The duty may also be raised on 300 products, ranging from footwear, furniture and TV parts to chemicals and toys, the reports also said. The proposal terms such imports as non-essential items that add to the country’s trade deficit. Purchase of more than two litres currently attracts a basic custom duty 100-150 per cent.

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"Over the last six years India has steadily reversed the trade opening to the world that began in 1991. This includes walking back from trade agreements, expanding import substitution rules, and customs duty hikes," Richard Rossow said. However, such import restrictions have not worked. "High import duties may slow market growth, and delay potential "Make in India" plans," Richard Rossow added. India’s trade deficit increased to $176 billion in FY19 from $157 billion in FY18, compared with $108.5 billion in FY17. During April-December FY20, the trade deficit stood at $118.10 billion.

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On the other hand, one of India’s largest trading bodies, the Confederation of All India Traders (CAIT), has supported the government's reported move. It's a step forward towards a long-drawn strategy of the government which needs all appreciation, Praveen Khandelwal, Secretary General, CAIT, told Financial Express Online.

"This strategy will ultimately strengthen domestic trade and small industry. 7 crore traders of the country welcome this shift in government policy which is domestic trade centric," Praveen Khandelwal also said. The hoarded are currently the main beneficiaries of the facility who use it to build stock on imported liquor which they later sell at higher prices, he added. The government, with this move, now intends to ensure that unnecessary imports are replaced with necessary imports such as electronic items, he noted.

Finance Minister Nirmala Sitharaman is slated to present budget on February 1, 2020.