The Hindu Business Line : Inverted duty structure hits many products: FICCI

The duty structure will badly affect 20 key industrial products and Indian manufacturers would be hit hard because of the various free trade agreements allowing zero duty imports from FTA partner countries.

New Delhi March 18 The inverted Customs duty structures proposed in Budget 2007-08 will badly affect 20 key industrial products and Indian manufacturers would be hit hard because of the various free trade agreements (FTAs) allowing zero duty imports from FTA partner countries, according to a survey carried out by FICCI.

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

This acts as a disincentive for the domestic manufacturer who has to pay higher price for the raw material while the finished product is imported at lower duty.

Though the peak Customs duty has been brought down to 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 the difficulties being faced by the industry, the survey report said.

The FICCI has suggested that there 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 or out of the commitments made in the FTAs.

The various types of products that are getting affected due to the inverted Customs duty structure include consumer durable items like colour TV and colour picture tube, air-conditioner, refrigerator, electric fan and transmission assembly, auto components, ceramic tiles, non-ferrous metals, paper, rice milling machinery, ceramic products, tyres and chemicals.

Citing examples, the survey points out that import duty is zero on certain auto components imported from Thailand like engine parts, lighting equipment, ball bearings, gear boxes, transmission lines, pumps and helical springs.

However, certain grades of alloy steel and aluminium alloy that act as raw material attract 5-10 per cent Customs tariff, making Indian manufacturers uncompetitive vis-à-vis foreign counterparts.

The chamber also stressed on the need to take early action on the recommendations of the Anwarul Hoda Committee on inverted duty structure.

It is of the opinion that 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.

There is a need to evolve and maintain a standard classification of products distinctly identifying finished products and those that can be used as raw material.

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