Budget may announce reduction in import duties on inputs

The commerce ministry is in the process of assessing the impact of free trade pacts on the country's manufacturing sector, so as to make suitable changes in the import duty structure.

It is likely that the full budget to be presented in Parliament next month, would announce a revised import duty structure.

India Inc has asked the government to correct the anomaly of an inverted duty structure wherein import duties on inputs are higher than duties on finished products.

An inverted duty structure thus encourages import of finished products and discourages value-added manufacturing, industry argues.

The Department of Industrial Policy & Promotion (DIPP) is analysing the extent to which India's free trade agreements with Japan, South Korea and the Asean have distorted the import duty structure and how it could be corrected.

''While this year's budget could make some changes in the import duty structure to correct some inversion, it has to be an on-going exercise because the issue is complex,'' DIPP officials said.

The DIPP has asked the commerce department for inputs which, officials say, could take some time.

''Since it is not possible for India to increase import duties on finished products because it has made a commitment to its FTA partners to keep those at low levels, the only way in which inversion can be addressed is by lowering duties on raw materials,'' a commerce department official said.

FICCI has identified nine manufacturing sectors that have reported duty inversion, which include aluminium products, capital goods, cement, chemicals, electronics, paper, steel, textiles and tyres.

A detailed study on the effect of duty reduction on a particular product and associated sectors will need to be done before deciding on any duty correction, officials said, adding that it may not be possible to reduce import duties across the board.

''For instance, although the import duty on rubber is much higher than that on tyre, bringing it down could have a devastating effect on rubber growers,'' sources pointed out.

India has signed FTAs with Japan, South Korea and the 10-member Asean countries over the last two years which commits the country to bring down tariffs substantially on most manufactured goods.