Customs duty inversions on key items may be corrected in Budget

Interest payments form the biggest chunk of government spending at 20 percent

India’s Make in India push may continue in the upcoming interim Budget as the central government is likely to majorly address the issue of inversions in custom duties imposed on various products ranging from textiles to engineering goods, sources told Moneycontrol.

The Ministry of Commerce has sent a list of items to the finance ministry to correct the inverted structure in the customs duty levied on certain items, one of the government officials said.

An inverted duty structure occurs when import duty on finished goods is lower compared to what is levied on the raw materials that are used in the production of those finished goods.

This leads to a situation wherein local manufacturers are unable to price their finished goods competitively since the raw materials or components imported for it attract a higher levy thereby discouraging domestic value addition.

Thus, in a bid to boost domestic manufacturing the Centre in the interim Budget for 2024-25 may correct this anomaly for key items. This is in line with the government's overall aim to promote exports and encourage domestic value addition.

Budget 2023-24
Even in the Budget for 2023-24, the central government reduced Basic Custom Duty (BCD) rates on several goods, other than textiles and agriculture, to 13 percent from 21 percent. While the BCD on electric kitchen chimneys was increased to 15 percent from 7.5 percent, the levy on heat coils was reduced to 15 percent from 20 percent. This change was initiated to rectify the inversion of the duty structure and encourage the manufacturing of electric kitchen chimneys.

Correction in inverted duty structures helps domestic manufacturers overcome disadvantages against other countries by reducing import duties on raw materials or components.

In fact, Commerce Minister Piyush Goyal had earlier reportedly said that whenever a raw material or an intermediate item would come through a Foreign Trade Agreement or some other route at zero duty, the Indian domestic manufacturers would be at a disadvantage.