The Union Budget 2023-24 has focused on bolstering production and promoting exports in several new and emerging areas of opportunity, with an emphasis on technology-intensive areas.
In the agriculture and allied sector, custom duty on aqua feed has been reduced, which would help in decreasing the inputs costs and promoting export competitiveness of marine products. After witnessing robust growth in 2021-22, exports of marine products from India have witnessed tepid growth during the April-December 2022-23 period. The reduction in custom duty on inputs would infuse vitality to exports from the sector and help tap the potential in the sector.
The government has redoubled the commitment to export diversification towards higher value-added and high-technology products, with announcements in emerging sectors such as electronics, and technology-intensive segments in the otherwise traditional sector of gems and jewellery. The government’s focus on the mobile phones segment has already turned India from a major net importer of mobile phones until 2018 to a net exporter of these products thereafter. The continued emphasis on the sector through relaxation in duties on certain inputs would further position India as an important manufacturing and export hub for mobile phones.
Lab-grown Diamonds
The measures announced in the lab-grown diamonds industry are another link in a mosaic of efforts being undertaken by the Government of India to diversify the traditional sector towards newer high-tech segments. India’s exports of polished lab-grown diamonds have grown by more than 20 times during the period 2015-16 to 2021-22, but there is high dependence on imported rough lab-grown diamonds. The government has planned a comprehensive ecosystem for the promotion of this sector, including research and development grant and the removal of custom duty on seeds for use in the manufacturing of rough lab-grown diamonds.
In the pharmaceutical sector as well, the government will be promoting research and development in specific priority areas, which would help the country move up the value chain in the life sciences sector.
There has also been an emphasis on green mobility, with a focus on the localisation of greater segments of the value chain for electric vehicles. The government has announced a custom duty exemption for the import of capital goods and machinery required for the manufacture of lithium-ion cells for batteries used in electric vehicles. Manufacturers in India currently rely on imports of lithium-ion cells from countries like China, Taiwan, Japan and South Korea. Encouragement of domestic capacities in the segment can contribute towards the achievement of self-reliance and gradual exports.
Infrastructure development for a reduction in logistic costs has been a core motif of the government’s agenda for the past several budgets. The Union Budget 2023-24 reinforces the commitment with the identification of one hundred critical transport infrastructure projects for last and first-mile connectivity that would be taken up on priority. The government has also announced initiatives for improving regional air connectivity and coastal shipping. Reduction in logistics costs through these infrastructure investments can lower the cost of exports and improve the price competitiveness of exports from the country.
Simplified Tax Structure
The Government has also simplified the tax structure by reducing the number of basic custom duty rates. Given the import-intensive nature of several exported products from India, the simplification can lead to enormous efficiency gains. A simpler tariff structure could lead to fewer disputes, increase the efficiency of manufacturing processes, support the automation of processes, and help the integration of India into the global value chains.
The First Schedule of the Customs Tariff Act would also be amended in accordance with the HSN 2022. The HSN 2022 is an update to the global Harmonized system nomenclature — a standardised system of names and numbers used to classify goods in international trade. The HSN 2022 revision has updated, added, and made changes to codes and classifications based on the latest trends and developments in the global trade of goods. Apart from alignment with the HSN 2022, new tariff lines are also proposed to be created for better identification of certain items such as millet-based products, mozzarella cheese, medicinal plants and their parts, certain pesticides, telecom products, synthetic diamonds, cotton, and fertiliser grade urea, among others. This would help in trade facilitation and better clarity on trade-related measures (such as concessional import duty) in the niche areas.
There has also been an institutional push towards export promotion, with the government announcing the setting up of a subsidiary of India Exim Bank in the GIFT City.
Overall, the Union Budget 2023-24 presents a well-rounded and comprehensive approach for promoting the technology-intensive segments in emerging as well as traditional areas, through a reduction in customs duties on crucial imports required for manufacturing, R&D promotion, continued focus on infrastructure improvement, and simplification of tax structures, among other initiatives.