Upset by the dismal performance of the manufacturing sector, the government may rejig import duty on raw materials. High import duty has rendered the Indian manufacturing goods uncompetitive in both domestic and export markets.
Tyres, electronic appliances, electrical equipment and medical instruments sectors are suffering due to an unfavourable customs duty structure.
“There may be some re-look on the inverted duty structure ahead of the 2012-13 budget. The manufacturing sector needs to attract more investment,” a senior Finance Ministry official told Deccan Herald.
Duty structure
Under the inverted duty structure, import duty on finished products is lower than duty on components used in manufacturing. The inverted duty structure also discourages domestic value addition. The industry has repeatedly protested the high customs duty structure.
According to a recent industry survey, manufacturing segments suffering due to the inverted duty structure are pumps for liquids, tyres, electronic hardware, electrical equipment, medical instrument, aluminium and articles and technical textiles.
One glaring example of inverted duty structure is the difference in import duty on finished steel and iron ore.
This denies the steel sector an opportunity for value addition. This can have a cascading effect on the economy, putting at risk not only huge funds invested by financial institutions and banks but also employment.
This can also discourage future investment in the steel sector, analysts said. Duty rate correction was important as the manufacturing sector has not shown any sign of sustained pick-up for long.