The government in the forthcoming Budget is expected to address the inverted duty structure, under which finished goods are taxed at lower rates than the raw material, so as to boost the manufacturing sector.
The Commerce and Industry Ministry in its pre-budget recommendations will ask the Finance Minister to remove this anomaly as it is impacting domestic manufacturers adversely, sources said.
"The ministry has already started consultations to deal with the matter as it will help in boosting the manufacturing sector in the country," said a source.
Inverted duty structure impacts the domestic industry adversely as a manufacturers have to pay a higher price for raw material in terms of duty, while the finished product lands at lower duty and costs low.
A Ficci survey recently said that the inverted duty structure is making Indian manufactured goods uncompetitive against finished product imports in the domestic market.
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It has pointed out that nine manufacturing sectors have reported duty inversion, which include aluminium products, capital goods, cement, chemicals, electronics, paper, steel, textiles and tyres.
Further, concessions given by India under free trade agreements (FTAs) to its partner countries has also resulted in inverted duty structure that makes Indian manufactured goods (those dependent on imported raw materials) uncompetitive in domestic market.
India has implemented FTAs with countries including Japan, South Korea and Singapore and are in discussion with several other nations.
An industry expert said that imported raw material users in a range of manufacturing industry segments are in a spot due to inverted customs duty structure that makes them uncompetitive against cheaper finished product imports and discourages domestic value addition.
Citing an example of the tyre industry, Ficci had said that inverted duty structure in this sector exists with respect to natural rubber which is the principal raw material for manufacturing. Basic customs duty on tyres is 10 percent as compared to 20 percent or Rs 20/kg (which ever is lower) on natural rubber.
Finance Minister Arun Jaitley is expected to present the Budget for 2014-15 in July.
Manufacturing, which constitutes over 75 percent of the index, declined 1.2 percent in March against growth of 4.3 percent a year earlier.
During the April-March period of 2013-14, the sector's output contracted 0.8 percent compared with 1.3 percent growth previously.
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