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Push for ‘Make in India’

To make it more attractive to produce a range of products from diapers to LED lamps and boilers to textiles and electronics in India, the government is looking to correct anomalies in the taxation structure that make it cheaper to import such products than manufacture them locally.

With an eye on boosting the Make In India programme, the finance ministry has asked the Tariff Commission to examine the industry’s submissions about inverted duty structures in a range of sectors such as textiles, capital goods, engineering products, aluminium, steel and copper products, and yes, diapers.

Inverted duties occur when the import duties on a finished product are lower than the import duties on its raw materials that local manufacturers need to rely on.

The basic customs duty on diapers, for instance, is 10.64% with a countervailing duty of 6.18%. However, the import duties on the raw materials for diapers — poly film, lycra thread, waist elastic and super-absorbent material — are far higher. Imports from the Asean countries, which enjoy a special customs duty of just 3% on diapers, become more competitive.

“Such a duty structure means the Indian manufacturer can’t compete with imported alternatives,” said an official, adding that there is a significant surge in imports in such sectors at the cost of idling domestic capacities.

Finance minister Arun Jaitley had recently said that the entire effort of the government was to lower the cost of manufacturing and improve quality. “Otherwise we will become a nation of traders rather than manufacturers,” he had warned.

With the manufacturing sector registering negative growth only for the third time since Independence last year, India Inc. has identified the high cost of raw materials and taxation hurdles as major challenges and is hoping for a rationalization of the tax structure as well as a critical look at free trade agreements or FTAs, according to PwC-Ficci’s Manufacturing Barometer report released last month.

The Federation of Indian Chambers of Commerce and Industry (Ficci) has submitted a list of around 100 products across sectors where the problem is acute and hurting domestic capacities. The incidence of inverted duty structures, in most of these cases, is due to concessions offered under FTAs.

Jyotsna Suri, president of Ficci, said that though India Inc. appreciates the country’s economic diplomacy efforts to integrate with the rest of the world, it is equally critical to spur domestic manufacturing and correct systemic anomalies that dent competitiveness. “Engaging with the world is important as well as fixing the problem at home so that more investments are viable and more jobs can be created,” she told ET.

While the finance minister fixed this problem for a few products in his maiden budget last July, industry has now pointed out that the problem hurting Indian manufacturers is more endemic.

Officials said that the specific products hit by inverted duty structures are now being examined by the Tariff Commission.

“The finance ministry has asked the commission to scrutinize the problem as the revenue authorities would like to ascertain how much of the raw material with higher import duties is used for a particular finished product,” said a senior official in the industry ministry aware of the issue.


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