Government plans comprehensive review of customs duties to boost manufacturing competitiveness

The government is set to conduct a thorough evaluation of customs duties on crucial inputs used in the manufacturing of finished products like garments, jewelry, metal items, and leather goods. This move aims to boost cost competitiveness in both domestic and international markets, according to three officials on Wednesday.

Although tax proposals were not considered in the interim budget on February 1, a comprehensive review of customs duties is expected after May in light of various free trade agreements (FTAs), as per the officials who spoke on condition of anonymity. Urgent changes may be considered earlier, pending thorough scrutiny and stakeholder consultations, especially if needed to safeguard specific sectors, one official mentioned.

In an effort to encourage domestic manufacturing, the government had previously rationalized import duties on various mobile phone components just before the interim budget, reducing customs duties from 15% to 10% on January 31. This included items like battery covers, front and back phone covers, main lenses, sealing gaskets, SIM sockets, screws, and other plastic and metal mechanical items.

The issue of duty inversion, raised by stakeholders and a parliamentary panel, particularly in the context of FTAs signed in 2010, is under consideration. Duty inversion occurs when raw material imports attract higher duties compared to finished goods, creating unequal competition for exporters in various markets.

The parliamentary panel expressed concern that failure to address this issue could have severe negative consequences for the manufacturing industry. Examples were cited in sectors like engineering goods, where raw materials faced higher duties compared to the finished products, leading to unequal competition in global markets. Similarly, the domestic leather, textiles, and jewelry sectors are facing challenges due to high duties on imports of key components.

The officials emphasized that customs duties are intended to encourage domestic manufacturing, curb the dumping of foreign goods, and control prices of essential commodities. They noted that Indian products face competitiveness challenges compared to those from other countries like China, Bangladesh, Sri Lanka, and Vietnam. The latest government data indicates a double-digit contraction in exports in sectors such as leather, gem and jewelry, and garments, contributing to the overall decline in India’s merchandise exports during the specified period.

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