20 key industrial products hit hard by inverted duty structure

New Delhi, Mar 18 (UNI) FICCI today decried that the government was integrating India with the global community, without regard to the consequences to domestic industry and in this regard cited 20 key industrial products, which have inverted duty structure due to gradual lowering of tariff values.

A study carried by the federation spanning several sectors identified 20 products which were being adversely affected due to the inverted duty structure resulting from free trade agreements (FTAs) and lowering of custom duties in the Union Budget 2007-08.

Inverted duty structure refers to an anomalous situation where the duty or tax on the finished product is lower than that on raw materials and intermediate products.

This acts as a disincentive for the domestic manufacturer as he has to pay a higher price for the raw material in terms of duty while the finished product is imported at lower duty, thus giving stiff competition to domestic manufacturers.

While duty rationalisation has been done in respect of some products and raw materials and exemptions have been withdrawn in Union Budget 2007-08, major areas of concern still persist especially relating to products included in FTAs and Regional Trade Agreements, the study sugessted.

While identifying some of the areas and products, which exhibit an inverted tax structure, the FICCI study highlighted some issues and constraints which have put the domestic manufacturers at a disadvantageous position.

Though the import duty reductions on some basic raw materials would be of some help to the domestic industry, the huge duty differentials between the two rates, the nil rate of import duty for finished goods under FTA and applicable duty for various raw materials and intermediate products would adversely affect the domestic manufacturers of such items.

Though the peak customs duty has been 10 per cent to align it with ASEAN levels, the steep reduction of import duty due to commitments made under bilateral trade agreements signed by India with countries such as Thailand, Singapore and Sri Lanka has widened the duty differentials resulting in an abnormal situation.

The federation said that in order to correct the situation arising out of inverted duty structure, there should be a matching tariff reduction for relevant inputs, whenever any finished product is subject to lower import duty as a result of general tariff reduction and also as a result of a free trade agreement.

The Chamber underlines the need for taking early action on the recommendations of the Anwarul Hoda Committee on inverted duty structure.

''There should be a phased reduction in import duties with a three tier import duty structure in place where finished goods attract the highest duty, raw materials attract the least duty and intermediate goods are subject to duty rates falling between the two levels,'' FICCI said.

''There is a need for evolving and maintaining a standard classification of products distinctly identifying products as the finished products and which can be used as raw material. Such identification and its classification has to be on rational basis with the consensus view of the industry to avoid double-taxation.'' FICCI also suggest some pro-active liberal measures for enhancing manufacturing competitiveness of Indian industries suffering from disabilities due to inverted duty structure.

UNI