Annexure-V- Cover Page for Academic Tasks

Course Code: ECO518 Course Title: MACRO ECONOMICS AND POLICY

Course Instructor: Dr. Tawheed Nabi Section : Q1948

Academic Task No.: 02 Academic Task Title:

Date of Allotment: Date of submission: 03/04/2020

Student’s Roll no: RQ1948B34

RQ1948B35
RQ1948B36
RQ1948B37
Student’s Reg. no: 11602966
11603049
11603174

Learning Outcomes: we have learnt about how custom duties will affect and economy of a
country and how it will leads to the rise in prices of products.

Declaration:

I declare that this Assignment is my individual work. I have not copied it from any other
student‟s work or from any other source except where due acknowledgement is made
explicitly in the text, nor has any part been written for me by any other person.
Students signature :

Evaluator’s comments (For Instructor’s use only)

General Observations Suggestions for Improvement Best part of assignment

Evaluator‟s Signature and Date:

Marks Obtained: Max. Marks: ………………………

 PEER RATING

ROLL NUMBER PEER RATING

B34 10
B35 10
B36 7
B37 10
 INCREASED CUSTOM DUTY AND IT’S EFFECT ON
CONSUMER PRODUCTS

INTRODUCTION :

Consumer goods :

Consumer products are the goods that we consume daily to meet our requirements
accordingly . They are the finished goods which have undergone manufacturing process and
are ready to use. All the gadgets, tables and chairs etc., are examples of consumer goods. The
goods that didn’t undergo manufacturing process doesn’t comes under consumer goods
because they are not ready for final use. Example for non consumer goods are raw gold and
iron etc.,

Consumer goods are solely sold to customers for their own enjoyment and not for any
economic productivity. There are three types of consumer goods and they are durable , no
durable and pure services that are consumed instantly as they are produced. For marketing
purpose consumer goods are categorised based on consumer behaviour and how frequently
consumer shops.

The largest consumer products segment is called FMCG(fast moving consumer goods). They
are non durable goods like food and can be consumed very fast through the chain from
producers to distributors and retailer then on to consumers. The companies that relate to
items purchased by individuals rather than by manufacturers and industries What is
'Consumer Goods Sector'. The consumer goods sector is a category of the stock. This sector
includes companies involved with food production, packaged goods, clothing, beverages,
automobiles and electronics.

The other type of consumer products is convenience products. These goods are bought by
consumers very often without making comparisons with other options. These are low priced
goods and are made available to consumers at a convenient place where anyone will be able
to buy them. Convenience products require mass production and promotions and should be
placed in an convenient location. Examples of convenience products are sugar, pens, pencils
and paper etc.,
Custom duty :

Custom duty is a tax imposed on export and import of goods. These taxes are imposed on
goods to raise the revenue or to restrict other international competitor . These duties are based
on the value of goods or on another criteria.

There are seven different types of custom duty categories that are used to impose taxes.

Due to increase in custom duties the cost of consumer products will increase because firms
do this to increase their profits by rubbing the import duties on consumers through the final
price.

Custom duties control the flow of prohibited and authorized goods in and out of country. The
duty rate is a percentage and is determined by value of the goods and not by it’s weight and
dimensions. Duty free goods are supposed to be taxable only for the country in which the
duty free shop is located. If any individual purchases any article exceeding the value of the
exemption then the individual should pay import taxes in the destination country.

The flat duty rate will be applied on some goods even if you have not crossed your
exemptions because to restrict the import of foreign goods such as beverages that are
available for purchase in your own country.

If any individual imports tobacco goods exceeding his limit then those goods will not be
taxed but they might be destructed or abandoned.

Increase in custom duties on consumer electronics encourages the domestic manufacturing

campaign because due to hike in custom duties the final price of the product may increase
any people looking for price-performance matching will not intend to buy those things unless
and until the firms bear the increased custom duties and reduce the price to attract consumers.
This hike will have an effect on the festive sales that occurs very often.

Tariffs are good for domestics manufacturers because they face less competition from the
outsiders which results in the increase in price and increased sales of a domestic
manufacturer. Import duties also increase government revenue any thus improve the economy
a country.
IMPACTS OF CUSTOMS DUTY ON THE COUNTRY :

 By increasing the price on sales products will increase income to the producers. This
results in the welfare losses for the consumers while the producers and company gains
are increased. The amount redistributed is the price increase multiplied by the average
quantity of domestic sales.
 A custom duty shifts some of the purchases from foreign goods to local or homemade
goods
 A customs duty makes consumers to pay their tax to the government directly. If
politicians will certainly follow the social approach then these tax revenues will get
back to the consumers as social services, if not the taxes might be used either for their
election campaigns or might get corrupted.
 Another important impact is that a “customs duty will discourage some purchases that
are more worth than they cost the nation.” Both by shifting some purchases toward
the costlier domestic goods which discourages some of the purchases that worth more
than what they cost, the welfare loss is occurring for both the importer and exporter,
because in the exporting country higher customs duty will reduces the products
access to sales in the importing market, and such higher custom tariffs will gets
increase the price of the imported products so that the consumer could not be able to
buy these imported goods.
 “If a country is performing the preferential trade area (PTA) with any other country
with substantially lower tariffs than the usual customs duty, it will have larger losses
with more and more imports from that country”. This implies that if a country has
lower value of customs duty than its partner country, by forming a customs union, the
losses for that country will increase proportionally with imports it is getting from its
partner country.
 A customs duty also sometimes lowers the internal price of imported goods.
According to the Metzler Paradox if the inflation rate is higher than that of the
exchange rate, the real value of domestic currency will rise which will increase the
demand of those imported goods. In this scenario application of the customs duty will
have the less negative effect on reducing the demand of the imported products. This
 will drive the worlds price down by even more than the size of its customs duty as it
may do if the foreign demand for the importing country’s export good is inelastic.

EFFECTS OF RISE IN CUSTOMS DUTY ON CONSUMER

PRODUCTS :

Custom duty plays and important role in price and value of consumer products. The
increasing custom duty has many effects as described below :

 Increase in the basic customs duty will boost up the Central government’s Make in
India program at the same time it will also provide momentum for the local
manufactured goods and also develops new capacities in India.
 The numerous Small-scale industries will emerge across the country as government is
trying it’s level best to carry out Make in India program.
 It will prevent the dumping of the products by the Chinese companies. We know that
china is largest producer of several goods and it is imposing its products on our
country so due to rise in the tariffs the imposing will decrease.
 This increase in import duties which is intended to discouraging companies from
importing their components and their goods from outside of India and encouraging
those companies instead to replace them with the goods that are manufactured in
India.
 Prices will go up and the discount offered to consumers will come down. As the
companies are paying the higher customs duty, the price of the products will go up
which leads to the decrease in the discounts from the companies to customers for
festivals like Diwali, Holi.
 This will lead to the rise the OEM’s towards the local operations which ensures
greater commitment to the development of the country.
 As the customs duty gets increased, some of the companies are setting up their plant
in our country which leads to increase in the job opportunities across the country.
 It will mainly effects the lower and middle class people because they feel difficult to
purchase the products as the price is getting increased due to high customs duty.
  For premier products segment , the consumers are product centric rather than price
centric so the customs duty rise won’t affect the premium products much compared to
the daily products and others.
 Increase in the customs duty will strengthen the rupee which will benefit the
industries at large.

PROBLEMS THAT OCCUR DUE TO HIGH CUSTOMS DUTY :

There are also several problems that will occur due to rise in the customs duty in a country.
They are described below :
 It is counter productive
 Due to high value of customs duty for foreign companies , the native companies are
getting protected from the foreign competition has became self complacent
 The quality value and productivity are getting decreased by the foreign companies
because of the higher customs duty.
 The made in INDIA label has still a sign of poor quality product in some international
markets .
 The productivity of the Indian industries is 20 to 30 percent less compared to the
abroad industries
 The smuggling, mafia and hawala trades will gets increased if the customs duty are
increased heavily.
 We don’t have enough required technology, skill set and expertise to manufacture
some of the high end products in India.
 It will effect the demand of the products as the people will wait for festival sales so
that they can buy the product at discounted price.

IDEAS :
Now here we discuss how increase in customs effects various type of consumer products one
by one. Here we are considering the latest custom duties that are increased in 2020 in India.
Electric vehicles :
On electric vehicles, duty on import of completely built bus and trucks was hiked from 25 to
40 percent. Even though it will give our Indian government a good amount of money to
contribute for the country but many problems will occur for our automobile sector. Currently
from last 3 years, the automobile sector was operating at very lower stage. The companies are
planning to boost up and gain profits from electric vehicles. But due to the high customs duty
(40 percent) for electric vehicles will make them fall again and also the new companies that
want to enter Indian market like Tesla will take back by seeing the higher customs duty.

Daily products :
Duties have been raised on butter, cheese, shoes, ceiling fans, food grinders, iron, room
heaters, tea and coffee makers, kitchenware and hairdryers to 20% from 10%. In the case of
margarine, peanut butter, chewing gum and infant food, duty has been hiked by 30% and
more. The duty on shelled walnuts, durum wheat seeds and margarine has been raised to
100%. The duties on the daily products will mostly affect the lower and middle class people
as they has to pay more price for the same quantity of product they used to get before.

Mobile phones :
The duties on the mobile phones has been increased from 12 percent to 18 percent. This will
make all companies to increase their price by 1000 for budget category phones under 20000.
For the premium phones like apple and Samsung , the customer will have to spend minimum
of extra 5000 rupees than what he is paying before to the maximum of 20000 rupees.

Heavy equipment :
Duty on compressors of refrigerators and air conditioners has been hiked to 12.5 per cent
from 10 per cent. This will not only affects the foreign companies but also the Indian
companies because most of the Indian Air conditioning companies are importing the
compressors from abroad. Now rise in the duties will make them to increase their price which
may have chance for the decrease of their sales for some time.

Furniture :
On furniture goods like seats, mattresses, lamps and lighting from 20 per cent to 25 per cent.
This will mainly the Dutch company IKEA that has entered the Indian market with its
furniture products in 2018. It is now planning to set its mark in the Indian market but due to
the rise in the customs duty, it has to increase the price of its product which will be a bad sign
for them.