Inverted duty structure troubles Indian industry
Updated: Jun 09, 2014 11:40:57am
New Delhi, Jun 9 (KNN) The Indian industry has raised concern over the inverted duty structure resulting from different factors including the implementation of the Free Trade Agreements, leaving very little scope for manufacturing within the country when the imported final goods attract less customs duty than that imposed on the raw material.
In one of its latest reports, the industry chamber FICCI has said that the defects in India's duty regime are also responsible for duty inversion, with basic Customs duty on raw material higher than that on finished products.
“It has been observed that in some cases 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 custom duty but in some cases as a result of other additional duties,” said a FICCI survey on Inverted Duty Structure in Indian Manufacturing Sector.
The issue has become even more pronounced as India is now a part of a number of regional/ bilateral Free Trade Agreements with countries like Japan, ASEAN and South Korea etc. “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 survey report added.
The complexity arises from the fact that the raw material of a particular finished product (identified for duty inversion) is also a part of input for some other sector.
One example of the inverted duty structure is the 10 per cent basic Customs duty imposed on tyres while the Customs duty on its key input-—natural rubber—is 20 per cent.
"Tyre imports enjoy preferential duty under India- Asean FTA, Sri Lanka FTA, Singapore CECA... which leads to imports at concessional rates from various countries ranging from 0 per cent to 8.6 per cent, increasing the incidence of inversion," said the FICCI report.
Duty on rubber is high to protect the 12 lakh rubber growers of the country. FICCI has identified nine manufacturing sectors—aluminium products, capital goods, cement, chemicals, electronics, paper, steel, textiles and tyres—which have duty inversions, flagging these as being inimical to the domestic industry.
A few months ago, the industry body All India Rubber Industries Association (AIRIA) had put up a representation before the Department of Industrial Policy and Promotion (DIPP) and Director General of Foreign Trade, saying that low import duties on finished products have rendered Indian manufacturing of rubber products by SMEs uncompetitive in several product areas.
According to All India Rubber Industries Association, President, Niraj I Thakkar, about 2 million people are employed in the rubber industry and there are about 5000 rubber units in the country in different SME clusters.
“The import of finished rubber products has gone up massively in the last three years from Rs 3,810 crore to Rs 7,608 crore in 2012-13,” Thakkar had told KNN.
“High import duty should be imposed on the import of finished rubber products rather than the raw material,” he had said adding that the manufacturers pay more import duty for key raw materials.
In countries like China, Pakistan, the import duties are more on the finished goods than on the raw materials.
“The market is too bad currently. The government should do something to protect the rubber industry which is suffering due to less demands and growing cost of production,” Thakkar added. (KNN/SD)
In one of its latest reports, the industry chamber FICCI has said that the defects in India's duty regime are also responsible for duty inversion, with basic Customs duty on raw material higher than that on finished products.
“It has been observed that in some cases 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 custom duty but in some cases as a result of other additional duties,” said a FICCI survey on Inverted Duty Structure in Indian Manufacturing Sector.
The issue has become even more pronounced as India is now a part of a number of regional/ bilateral Free Trade Agreements with countries like Japan, ASEAN and South Korea etc. “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 survey report added.
The complexity arises from the fact that the raw material of a particular finished product (identified for duty inversion) is also a part of input for some other sector.
One example of the inverted duty structure is the 10 per cent basic Customs duty imposed on tyres while the Customs duty on its key input-—natural rubber—is 20 per cent.
"Tyre imports enjoy preferential duty under India- Asean FTA, Sri Lanka FTA, Singapore CECA... which leads to imports at concessional rates from various countries ranging from 0 per cent to 8.6 per cent, increasing the incidence of inversion," said the FICCI report.
Duty on rubber is high to protect the 12 lakh rubber growers of the country. FICCI has identified nine manufacturing sectors—aluminium products, capital goods, cement, chemicals, electronics, paper, steel, textiles and tyres—which have duty inversions, flagging these as being inimical to the domestic industry.
A few months ago, the industry body All India Rubber Industries Association (AIRIA) had put up a representation before the Department of Industrial Policy and Promotion (DIPP) and Director General of Foreign Trade, saying that low import duties on finished products have rendered Indian manufacturing of rubber products by SMEs uncompetitive in several product areas.
According to All India Rubber Industries Association, President, Niraj I Thakkar, about 2 million people are employed in the rubber industry and there are about 5000 rubber units in the country in different SME clusters.
“The import of finished rubber products has gone up massively in the last three years from Rs 3,810 crore to Rs 7,608 crore in 2012-13,” Thakkar had told KNN.
“High import duty should be imposed on the import of finished rubber products rather than the raw material,” he had said adding that the manufacturers pay more import duty for key raw materials.
In countries like China, Pakistan, the import duties are more on the finished goods than on the raw materials.
“The market is too bad currently. The government should do something to protect the rubber industry which is suffering due to less demands and growing cost of production,” Thakkar added. (KNN/SD)
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