New Delhi, Dec. 27: The government wants to bring down average customs and excise duties close to 10 per cent in the forthcoming budget from 15 per cent at present.

The move stems from the series of free trade and preferential pacts that India has signed with its Southeast and East Asian neighbours. India has signed such agreements with Singapore and Thailand. It is negotiating a preferential pact with China and a free-trade agreement with Korea.

“The FTAs are forcing us to reduce average duties on imports close to 10 per cent. We cannot have higher duties on domestic products, so excise rates, too, have to come down to similar levels,” a finance ministry official told The Telegraph.

While a reduction in customs duties is likely to raise howls of protest from India Inc, the fall in tariffs could mean lower prices for a host of goods for Indian consumers.

The duty cuts are likely to be in consumer goods such as automobiles and wines and spirits. Duties on these products are high at present. India Inc is already grumbling about the FTAs India has been signing. It is worried about the cheap foreign goods that will flood the market as a result of these pacts.

However, the Prime Minister’s Office has made it clear during meetings with finance ministry officials that the duty cuts need to be worked into this year’s budget calculations. The PMO believes that since India is signing various free trade and preferential trade pacts, local manufactures should be taxed at rates similar to that of Asean nations.

Revenue officials are also unhappy with the move. Average customs duty was cut in this year's budget to 15 per cent, which led to a “loss” of Rs 3,168 crore to the government exchequer. They point out that further cuts could mean more red ink in the government’s balance sheet.

The finance ministry has directed that expenditure by various government departments, too, should be squeezed. Several hard decisions, including those on shutting down sick PSUs, are likely to be forced through. These are necessary to prune fiscal deficit. However, there are limits to hard decisions that can be taken, given the need for support from the Left.

Besides, the central government will be hard pressed to find money to fund the rural employment guarantee scheme, which was launched with earlier this year.