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 Union Budget 2020-21, sources said on Monday.
India's industrial production, as measured by the Index of Industrial Production, stood at 0.6 percent in April-November 2019, down from 5 percent in the year-ago period. IIP, however, rose to 1.8 percent in November after three straight months of contraction.
In an inverted duty structure, inputs are taxed higher than the finished product—resulting in build-up of credits and cascading costs. The industry has been demanding removal of the system, with regard to taxation of raw material and other inputs, 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.
The 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, or 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 the domestic market.
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India has implemented FTAs with many countries including Japan, South Korea and Singapore, and is in discussion with several other nations.
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