To boost manufacturing, as part of the ‘Make In India’ campaign, the government is expected to address the issue of inverted duty structure, especially in sectors such as chemicals and electronics, in the forthcoming Budget, sources said. Inverted duty structure refers to taxation of inputs at higher rates than finished products that results in build-up of credits and cascading costs. Industry has been demanding that government should remove the anomalies with regard to taxation of raw material and other inputs, the sources said.
The commerce and industry ministry has proposed to the finance ministry to address the inverted duty structure on several products such as consoles, panels, certain steel products, calcined alumina, ethyl acetate, and viscose staple fibre, they added. 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 cost.
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. India has implemented FTAs with many countries including Japan, South Korea and Singapore, and is in discussion with several other nations. The Index of Industrial Production (IIP) growth during April-November period of the current fiscal came in at 0.6 per cent, down from 5 per cent in the same period of 2018-19.