'Goods in 6 manufacturing sectors face inverted Customs duty'

Products across six manufacturing sectors, including capital goods, cement and electronics, face an inverted Customs duty structure that erodes competitiveness against finished product imports with a lower levy and discourages domestic value addition, says a report.
According to the document prepared by industry body Ficci, various products across six manufacturing sectors face duty inversion. Put simply, this means the import duty applicable on the finished product is lower than that of the raw material or intermediate product.
These sectors include capital goods (like boilers, pressure vessels, etc), cement, electronics and electricals, rubber products (including tyres), minerals and textiles.
The report has been submitted to the authorities concerned, including the Tariff Commission and the department of industrial policy and promotion (DIPP) for necessary action, Ficci said.

"It has been observed in six broad sectors that the import duty applicable on the finished product is lower than the import duty on the raw material or intermediate product which discourages domestic value addition. This inversion is not solely because of basic Customs duty, but in some cases as a result of other additional duties," the report stated.
"In many cases, differential in the CVDs (countervailing duties) of final products and raw material has also led to the problem of inversion, thereby indicating that a similar problem exists in excise regime also."

The issue, according to the report, has become more accentuated as India is now part of a number of regional or bilateral free trade agreements and is negotiating a host of others.

"Even though FTAs aim to provide equal opportunity to Indian players in terms of exports, higher import duty on raw materials results in an inverted duty structure that makes certain Indian manufactured goods (those dependent on imported raw materials) uncompetitive," the report noted.
According to the findings, inverted duty structure exists for products like blow-moulding machines, pressure vessels, parts of heat exchangers and nuclear reactors, boilers, their components and the like.
It has been reported that duty inversion exists in certain cases, especially under India-Japan CEPA and India-Korea CEPA (Comprehensive Economic Partnership Agreement), the report said.
It noted: "While many of the raw materials and components used in the final products are also included in respective FTAs, the same exacerbates rather than correcting the duty inversion. In many cases, not just one component, but several components have higher duty than the final product."

While import of cement does not attract basic Customs duty, all major inputs for manufacturing cement such as limestone, gypsum, pet coke, pickling bags etc attract duty, the report said, highlighting that over a million tonne of cement is being imported from Pakistan against domestic cement production of 280 million tonnes.
It added that the entire cement imported in India caters only to 3-4 districts in Punjab, thus creating huge disadvantage for domestic manufacturers.