Budget 2024: Remedial steps to fire up local manufacturing

Budget: India may take steps to correct the inverted duty structure on a number of goods by rationalising levies on several products that are inputs for electronics, copper tubes and pipes, ferro alloys, textile staple fibres and certain chemical preparations to lift local manufacturing, people familiar with the move said.

The government has drawn up a list of finished products that are subject to lower import duty than the materials needed to make them, or an inverted duty structure.

The commerce and industry ministry has undertaken a cross-sectoral study to rationalise such inverted duty structures to improve India's manufacturing competitiveness and aid domestic manufacture of value-added products.

An inverted duty structure leads to cheaper imports of finished products and disincentivises domestic manufacturing.

"Efforts are on to check the inverted duty structure and a list of products has been shared with the finance ministry," said an official.

Some Sectors at a Disadvantage
Some furniture and jewellery items, petrochemicals and medical equipment are also part of the list. An announcement could be made in the July 23 budget once discussions are finalised, said the people cited above.

India has rolled out several measures to encourage local manufacturing such as production-linked incentive (PLI) schemes, higher import tariffs and closer monitoring of goods coming into the country.

The proposed correction of the inverted duty structure is another step in that direction. Such a duty rationalisation exercise has been done in earlier budgets as well.

Indian industry faces a disadvantage due to the inverted duty structure in ferro alloys, aluminium, copper pipes and tubes, textile staple fibres and some chemical preparations, especially given the country's free trade agreement with the 10-member Association of Southeast Asian Nations (Asean) bloc.

"The customs duty structure has been impacted for a number of products on account of exemptions, free trade agreements and interventions at all stages," said Bipin Sapra, partner, EY India. "The inverted duty so created discourages Make in India and an urgent sectoral review is needed to prevent this from happening."

Industry has identified woven cotton fabrics, polyester and cotton yarn, pumps and compressors, carbon electrodes, sulphur, certain acids, and taps and valves are other sectors hit by inverted duties.