Budget likely to correct inverted duty structure

Govt also weighs steps to expand export credit and insurance cover

- Dilasha Seth & Ravi Dutta Mishra

The government will likely consider correcting the inverted duty structure across sectors impacting domestic manufacturing in the upcoming Union budget, as muted external demand affects India's exports and current account balance.

The government is also considering measures to expand export credit and insurance cover, encourage services exports and provide marketing and branding support for products such as khadi and coir with geographical indication (GI) labels.

The inverted duty structure, where inputs or raw materials are taxed at higher rates than finished products, hurts the competitiveness of Indian manufacturers, especially in sectors such as textiles and apparel. This makes an Indian-made product more expensive than an imported finished product.

"Correcting duty anomalies is key to attracting investments in manufacturing and improving India's export competitiveness. The ministries of finance and commerce have examined it and may try to correct the anomaly where deemed fit," a government official said, seeking anonymity.

India's current account deficit (CAD) widened to a nine-year high of 4.4% of GDP in the second quarter because of a higher trade deficit, reflecting the impact of slowing global demand on exports. The country recorded a CAD of 3.3% of GDP in the first half of the current fiscal.