Anything for the High Life...

In the din and frenzy of inflation that is searing the Aam Admi, certain significant comments by Kamal Nath, the Commerce Minister appear to have gone unnoticed.


De-facto Minister for Promotion of Luxury Imports - at a 2007 Conference

Kamal Nath, speaking at a Luxury Conference on 28th March 2008, declared that the government was planning to increase foreign direct investment in single-brand retailing. While this comment could be seen as a continuance of his pet theme of promoting the Cause of Foreign Retailers and Imported Luxury Products, his further comments sound quite strange.

He said that “The government could reduce import taxes of high-end luxury goods. We do have high tariffs so we are looking at rationalizing these. We also have to differentiate between high-end and low-end luxury goods.” Kamal Nath said India could look at the tariff model which was applicable to wines and spirits where high value products are subjected to lower duty. Propounding his rationale, he said that India may reduce import duties on luxury products to stem revenue losses from luxury brands bought by Indians traveling abroad. “India has high tariffs and we recognise that if you go abroad and buy, then the country loses revenues. Therefore, we are working on both duties and countervailing duties.” He said he had forwarded proposals for duty cuts to the finance ministry. He further added: India is unwilling to reduce tariffs on low-cost imports, which can hit its own industries.

His talk of reducing import duty on high-end luxury products appears to be quite bizarre, to say the least. Let us examine his quixotic idea and his incomprehensible rationale.

First of all, he said that Govt. was losing revenue from luxury goods bought by Indian traveling abroad. What revenue is he talking about? Is it Customs Duty? Imports by Indians traveling abroad are governed by the Baggage Rules which, broadly speaking; allow import of up to Rs. 25,000 per passenger subject to some further restrictions e.g. max. 2 liters of spirits and alcohol. Everything above this level is dutiable. So, when Kamal Nath talks of revenue loss when Indians buy luxury goods abroad and bring them into the country, does he imply that the Customs Dept. lets them import anything they wish without duty, either due to lax control or otherwise? And, if at all there is revenue loss due to the duty free limit, should this not be the worry for Finance Ministry which determines the limit after due consideration and consultations? What does he, as the Commerce Minister have to do with this?

Could he be thinking of domestic revenue loss assuming the same products were imported in bulk at a low duty and sold in the country by the foreign entities involved in single-brand retailing? If that be so, then also the issue of revenue loss is not his concern as Commerce Minister. Perhaps, then, his real objective is only to promote large imports of Luxury products by the foreign retailers at low import duties. The revenue loss rationale is just a bogey.

Secondly, what is the logic in saying that high end products require less duties and low end require more duties? He does not want duties to be reduced for low-priced products on the ground that it will swamp the local markets with cheap imports from countries like China and hit the country’s own industry. That argument may carry its own logic. What it does mean, though, is that Western countries whose branded products are expensive should get the benefit of low duties. If similar products can be supplied by others at lower prices, they should suffer higher duties. The higher the price, the lower the duty, because those charging higher prices need to have higher profits - simple.This is turning the principle of equity and fairness on its head. How can a govt. that encourages its ministers to use such concepts to promote luxury products be called a govt. that cares for Aam Admi?

(see more details of these luxuries here)

Thirdly, exactly which products does he have in mind for the reduction in import duty? India’s duty structure is no longer what it was ten years back and today it is in full compliance of its WTO obligations as regards maximum duty tariffs. Most of the products, even consumer products whether high end or low end, carry a basic duty of just 10%. A few products which do have a basic duty of over 30% are:

Cars, Motorbikes etc. – 100%. However, it is absurd to think that Indians travelling abroad would buy them there and bring them into the country as returning travellers without paying duty.

( see more details of these luxuries here or here)

Apparel – Here, although the basic duty is just 10%, there are minimum specific duties. The highest minimum duty is in the case of men's suits being Rs. 1,100 per piece. This could hardly be termed as high and deserving to be reduced for the so-called ‘high-end’ products which in any case, would be subject to the 10% duty.

Alcoholic Beverages – Wines carry a high duty of 150%. Whisky which was brought down from a high of 182% following a dispute with EU and USA, still carries a duty of 150%.

Food products – All food products including food grains, edible oils, tea, coffee etc. carry higher rates of duty between 30% and 100%. Pet foods have a lower duty of 20% under a dispensation given by the Finance Minister.

So were Food Products were on the Minister’s mind for duty reduction? In his wisdom, the Minister might have already realised in the month of March, the developing situation that would make food products the real luxuries for the Aam Admi!

Or products made out of food grains, say, whisky? Exactly a year ago in May 2007, the country’s top distillery group of Vijay Mallya acquired Whyte & Mackay, one of the producers of Scotch whisky for $ 1.2 bn. One of the prime reasons for acquiring this distiller with a capacity of 40 million liters was to exploit the Indian market where Mallya holds a sound position. The success of the acquisition, therefore, depends in no small measure on the reduction in the import duty structure, especially for import of the Scotch concentrate. Is this a product on the Minister’s mind then?

Or is he simply trying to vie with the Finance Minister in announcing give-aways for promoting the high life? It will be remembered that this Finance Minister recently announced, quite unnecessarily, a reduction in excise duty on small cars, completely unmindful of the disastrous impact it may have on the stressed infrastructure. Earlier in Dec. 2006, this Govt. was also reported to be considering a duty reduction on large cars applying some perverse logic!

Jack Russels - favorites of Very Important Persons... at the school of petcare

The same Finance Minister of this country with a GDP of $ 1.16 trillion and central revenues of $ 177 billion, had grandly announced in his Budget Speech last year, a decision of great consequence for the country: “I have good news for cat and dog lovers. I propose to reduce the duty on pet foods from 30 per cent to 20 per cent.”

Distinctly refined tastes

All this is written here just to place things in context and show this Govt.’s sense of priorities.

It is a Govt. that truly cares - FOR THE CREAMY LAYER



Anything to please .......