Budget to take care of 'inverted duty structure' in manufacturing

Many issues related to inverted duty structure, which has adversely impacted domestic manufacturing, may be addressed in the coming budget, a senior government official said today.

Under inverted duty structure, finished goods are taxed at lower rates than raw material.

“Inverted duty structure is a very complex issue. It is an issue which has adversely impacted manufacturing in India and which needs to be dealt with,” DIPP Secretary Amitabh Kant said at the ISB national conclave here.

“A lot of analysis and research has been done by our Economic Division along with the National Manufacturing
Competitiveness Council and the Tariff Commission and I think many of them (issues related to inverted duty structure) will be addressed in the coming budget,” he said.

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Inverted duty structure impacts the domestic industry adversely as manufacturers have to pay a higher price for raw material in terms of duty, while the finished product lands at lower duty and costs low.

Further, concessions given by India under free trade agreements (FTAs) to its partner countries has also resulted in inverted duty structure that makes Indian manufactured goods (those dependent on imported raw materials) uncompetitive in domestic market.

Asked about inverted duty structure and its impact on Indian competitiveness, “Over the years we have brought in an inverted duty structure where it has become far more easier to import a finished product rather than bringing in intermediate goods, do value addition and do manufacturing here.

“In some of the areas inverted duty structures are rising because of the tax structures, in some areas they are rising because of the FTA regimes. This issue was addressed in the last budget,” he added.

India has implemented FTAs with countries including Japan, South Korea and Singapore and are in discussion with several other nations.

Showing signs of recovery, industrial production grew at three-month high of 2.5 per cent in September, mainly on account of better mining and manufacturing output and larger offtake of capital goods.

Manufacturing output, which constitutes over 75 per cent of the index, grew by 2.5 per cent in September, compared to 1.4 per cent in the same month a year ago

PTI