Union Budget 2016

1) The Finance Minister Arun Jaitley today widened the duty

drawback scheme to extend more support to the export sector.
"The duty drawback scheme has been widened and deepened to include
more products and countries. The government will continue to take measures
to support the export sector," Jaitley said in his Budget speech for 2016-17.
Under the scheme, the government refunds duties on imported inputs for
export items.
Exports dipped for the 14th month in a row, down 13.6 per cent in January to
USD 21 billion due to fall in shipments of petroleum and engineering goods,
although trade deficit showed improvement.
Imports shrank 11 per cent to USD 28.71 billion last month, resulting in a
trade deficit of USD 7.63 billion, lowest in eleven months. In February last
year, the deficit was USD 6.85 billion.
For the first 10 months of the current fiscal, cumulative exports declined by
17.65 per cent to USD 217.67 billion, as against USD 264.32 billion in AprilJanuary period of 2014-15.

2) FTAs lead to faster growth in imports than exports

In case of the ASEAN FTA, there has been 3 per cent increase in exports and
79 per cent increase in imports
Indias Free Trade Agreements (FTAs), currently about 42, have increased
trade with FTA countries more than would have happened otherwise.
However, increased trade has been more on the import than export side,
because India maintains relatively high tariffs and hence had larger tariff
reductions than its FTA partners, according to the Economic Survey.
In case of the ASEAN FTA, the country has benefitted on both sides of trade
flows with a statistically significant 33 per cent increase in exports and 79 per
cent increase in imports.
The trade increases have been much greater with the ASEAN than other FTAs
and they have been greater in certain industries, such as metals on the
import side. On the export side, FTAs have led to increased dynamism in
apparels, especially in ASEAN markets.

The overall effect on trade of an FTA is positive and statistically significant.

The cumulative effect between the year of the FTA and 2013 on trade with
ASEAN, Japan, and Korea is approximately equal to 50 per cent. Indias
increased trade with FTA countries is not due to diversion of imports from
more efficient non-FTA countries.
On the import side, a ten per cent reduction in FTA tariffs for metals and
machinery increased imports by 1.4 per cent and 2.1 per cent respectively,
compared to other products from FTAs or all products from non-FTA countries.
In the current contest of slowing demand and excess capacity with threats of
circumvention of trade rules, progress on FTAs, if pursues, must be combined
with strengthening Indias ability to respond with WTO-consistent measures
such as anti-dumping and conventional duties and safeguard measures.
Analytical and other preparatory work must begin in earnest to prepare India
for a mega-regional world, said Ministry of Finance in a press release.

3)Minimum import price on steel to impact exports, fears EEPC

The government on Thursday imposed a minimum import price (MIP) on 173
steel products ranging between $341 to $752 per tonne.
Engineering exporters body EEPC on Saturday said imposition of minimum
import price on certain steel products will have a "serious debilitating" impact
on the sectors' exports which are already declining.
The introduction of Minimum Import Price (MIP) on steel products will raise
the cost of raw materials for engineering products by about 6-10%,
Engineering Export Promotion Council (EEPC) said in a statement.
The government's decision "will have a serious debilitating impact on
engineering exports" which have already declined by 15% in the first nine
months of the current fiscal, it added. The body asked the government to
come out with a compensatory mechanism to make up for the increased raw
material price. It said that the MIP would only protect the large steel
manufacturers.
"Segments like auto and auto parts, industrial and electrical machinery,
products of MSME sector, which in any case have low margins and are facing
cut throat competition will face sudden escalation in raw material price,
giving a further jolt to the exporters," it added.
The move would also have an inflationary impact on the entire manufacturing
sector, it said, adding "the government must provide steel at global
competitive prices." The government on Thursday imposed a minimum

import price (MIP) on 173 steel products ranging between $341 to $752 per
tonne.
Engineering exports declined by 15.68% in December to $5.82 billion in
December 2015.

4) Government hikes import tariff value on gold, silver

The government today hiked import tariff value on gold and silver to USD 399
per 10 grams and USD 495 per kg, respectively, taking cues from global
market.
For the first fortnight of this month, the import tariff value on gold was fixed
at USD 388 per 10 grams and on silver was USD 487 per kg.
The import tariff value is the base price at which the customs duty is
determined to prevent under-invoicing. It is normally revised on a fortnightly
basis.
The change in tariff value of these precious metals has been notified by the
Central Board of Excise and Customs.
The import tariff value of gold and silver has been changed taking into
account the price trend in the global market and rupee situation.
Globally, gold added 0.4 per cent to USD 1,228.65 an ounce in Singapore.
Bullion traders said a firming global trend where gold is headed for the
biggest monthly advance in four years as a darkening global outlook spurred
demand for a safe-haven assets, mainly buoyed the sentiment here.
The Finance Minister in his Budget speech today has announced to impose
one per cent excise duty on articles of jewellery excluding silver proposed in
2016-17.
The country's gold imports have more than doubled to USD 3.80 billion in
December 2015, driven by dip in global prices, as against USD 1.36 billion in
the year-ago period.

6) Budget 2016: Govt proposes 14% service tax on shipping

companies importing goods
In a bid to discourage imports of goods, Finance Ministry Arun Jaitley in Union

Budget for financial 2016-17 (Apr-Mar) has announced imposition of 14%

service tax on services provided by domestic shipping companies
transporting goods from outside India.
The service tax on services provided by shipping companies by way of
transportation of goods by a vessel from outside India up to the customs
station in India will be 14% with effect from 1 June, 2016, said the Budget.
However, industry officials are of the view that though the move is directed
towards discouraging imports, it will mainly impact the logistics sector and
largely the end-user division as shipping companies will be simply passing on
this cost.
The move of 14% service tax is negative but will not impact shipping
companies directly as it will be passed on to the end-user, said Vikram
Surayavanshi, senior analyst with Philip Capital.

Meanwhile, shipping companies engaged in export assignments will be

allowed the input tax credit, a move to encourage export of goods, one of
the crucial parts of 'Make In India' initiative kick-started by the government.

Services provided by Indian shipping lines by way of transportation of goods

by a vessel to outside India being zero rated with effect from 1 March, 2016,
said the Budget.

The move pertaining to input tax credit is in line with industry expectations
as it will improve competitiveness of Indian flag companies as against the
foreign flag vessels,
Keeping the heavy balance sheets and drying toplines of domestic
shipbuilding companies in mind along with the future prospects for them to
attract orders mainly from the navy and defence division, the budget has
exempted the shipbuilding company from excise duty on capital goods and
spares thereof, raw materials, parts, material handling equipment and
consumable for repairs of ocean-going vessels.

This move is going to make shipbuilding more competitive and shipping

companies will be encouraged to place orders or repairs with domestic repair
units,

This kind of a change will have a positive impact on the shipbuilding

industry from the medium-to-longterm perspective, he added.

The coastal shipping industry, however, remained disappointed as no

incentive schemes were announced for this segment.

7) Aluminium stocks gain on import duty hike

increased imports duty on aluminium to 7.5% from 5% in a bid to save the
industry from imports that have captured more than half the domestic
market.

Aluminium industry in India is facing tough competition from cheap imports

into the country while global aluminium prices have fallen 44% to $1500 a
tonne in January this year from $2662 per tonne in April 2011.

Plant shutdown and job cuts are underway as capacity utilisation of domestic
aluminium industry has fallen drastically in the last one and a half years as
global prices declined.
CEOs of aluminium producing companies like Vedanta and Hindalco had
sought an urgent intervention from Finance minister demanding a doubling of
import duty to 10% at least.

The Economic Survey presented last week had said raising tariffs to check
imports of aluminium will erode the competiveness of aluminium consuming
sectors like power, transport and construction.

Vedanta shares rose 4% at Rs. 74.50 apiece while NALCO shares were up
1.50% at Rs. 33.75 on Monday afternoon on BSE. Hindalco shares, however,
were trading flat at Rs. 69.25.

8) Mobile phone, tablet prices may rise 5% post duty rejig

The central government has made imports of some mobile phone

accessories, batteries and populated printed circuit boards more expensive,

which would lead to a 5% increase in handset prices. However, it has given
yet another push to its Make in India program by reducing import duties on
components used in accessories, aimed at lowering the country's electronics
import bill.
In the 2016-17 Budget, finance minister Arun Jaitley has proposed a 2%
increase in special additional duty (SAD) on printed populated circuit boards
used in making mobile phones and tablets, which would lead to increase of
overall cost of these devices.
the Union Budget has suggested to withdraw Basic Customs Duty (BCD) and
Countervailing Duty (CVD) exemptions on imports of chargers, adapters,
battery, wired headsets and speakers used in mobile phones. With a BCD of
10%, CVD of 12.5% and SAD of 4%, the total duty cost comes to 29.44%,
making the duty differential of 27% as the products made locally attracted
excise duty of only 2%.
"The industry was unhappy" with the changes and prima facie, "prices of
handsets and tablets will rise by 5%,"
"Populated PCBs are roughly half the cost of a phone... any increase in cost
will get passed onto consumers," said Pankaj Mohindroo, president of the
Indian Cellular Association, which represents handset maker in India. "This is
a downright negative move,"

The industry added that by imposing 2% SAD duty differential between

complete mobile phones and its parts or components for manufacturing will
be significantly diminished. It pointed out that India has not yet developed
the eco-system for the complexity involved in populating a mobile phone
bare PCB.
The overall impact will be on the negative side in the short term, as the cost
of the components put together is about 35% for featurephones, compared to
10% in smartphones. Therefore, prices of featurephones may rise more than
that of smartphones in the immediate future.
However, in the long term, the duty differential will create a separate industry
worth Rs 7,000-Rs 10,000 crore will be set up in India by 2018, Indian Cellular
Association said. The government intends to achieve another goal of bringing
the entire supply chain and more value-addition into local production.
The government has annulled duties on inputs, parts and components,
subparts for manufacturing of chargers, adapters, battery, wired headsets
and speakers of mobile phones.

Routers, broadband modems and set top boxes, digital video recorder and
CCTV cameras are set to become cheaper by 7-8%, due to changes in excise
duty structure, said Nitin Kunkolienker, vice president of MAIT. The
government has annulled excise duties on parts and components, subparts
used for making these products locally.

The government has also proposed 10% BCD on preform of silica for
manufacturing of optical fibre. BCD exemption on capital goods and inputs
used for making micro fuses, sub-miniature fuses, resettable fuses has also
been proposed.
The government imposed BCD of 10% on soft switches and voice over
Internet Protocol (VoIP) equipment namely VoIP phones, media gateways,
gateway controllers and session border controllers, optical transport
equipment, IP radios, carrier ethernet switch and Long Term Evolution (LTE)
products among others.