The government on Saturday proposed to raise taxes on imports of goods such as electronic items, toys and furniture in the Budget, aiming to boost domestic manufacturing — especially its floundering Make in India programme — in a move that will hurt Sweden's Ikea and other foreign companies.

Taxes on imports of items such as fans, kitchenware, and small electrical appliances will be doubled to 20 percent and the levy on furniture, including seats, lamps, and mattresses, will be raised to 25 percent from 20 percent. These new taxes, said the government, were consistent with the Make in India programme aimed at helping the domestic industry.

Furniture maker Ikea’s CEO Peter Betzel said the company was disappointed with the increase in duties. "We are further evaluating the impact of the hike on our total business," he said.

Ikea, which has committed to invest more than $1.7 billion in India, imports roughly 75 percent of goods sold in the country.

Foreign companies have been complaining that India has increasingly resorted to protectionist rules that discriminate against them. The US administration and American companies have criticised some of India’s regulatory changes in recent years, saying that they favour domestic firms over foreign ones.

Sitharaman defended the decision, saying the rationale was that if certain goods were being manufactured locally at "equal quality, if not better, (then) we had no reason to import."

In an interview to Network 18, Sitharaman explained the rationale behind the move. The import duties have been imposed to shield small enterprises against the massive dumping by foreign companies at throwaway prices. “So I think it is important that this be seen not as a protectionist measure, but very clearly a measure where dumping — unparalleled extent of dumping — has to be contained.”

Rajeev Dimri, partner and co-head, Tax, KPMG in India, said the government seeks to boost to government’s Make in India initiative by laying down additional customs duties.

Indian manufacturers agreed.

Deepak Jain, president, Auto Component Manufacturers Association (Acma) said the focus on electronics manufacturing including electronic equipment and semiconductor packaging is welcome and will encourage the manufacturing of auto-electronics and components of electric vehicles. “Measures adopted by the government to strengthen checks on imports due to FTA (free trade agreement), review of rules of origin, enhancing safeguard duties and invoking quality control order on import sensitive items will encourage 'Make in India'.”

Taxes on imported toys would be tripled to 60 percent, a move one industry executive said could hit imports of toys made by firms such as Lego, Hasbro, and Mattel, and boost smuggling of unbranded toys from abroad. "It's a protectionist move," said the executive.

The government also said a tax of 5 percent will be imposed on imported medical devices to fund health infrastructure. The measure could hit companies such as Abbott which are already battling price caps imposed by the government. “It would make some imported medical devices costlier and that increase will likely be passed on to consumers," said an executive of the foreign medical device company who is based in India.

The duty on shelled walnuts will be raised to 100 percent from 30 percent while certain car and smartphone parts will also face higher import taxes.

First Published:Feb 1, 2020 9:59 PM IST