Inverted duty structure

Why in news?

• The rubber goods industry, especially the non-tyre segment, is worried over the irrational inverted duty structure that has put several domestic manufacturing units uncompetitive.

What is it?

• Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods.

Example:

• For example, suppose the tariff (import tax) on the import of tyres is 10% and the tariff on the imports of natural rubber which is used in the production of tyres is 20%; this is a case of inverted duty structure.

Consequence:

• When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price.
• High tax on the raw materials compels them to raise price.
• On the other hand, foreign finished goods will be coming at a reduced price because of low tax advantage.
• In conclusion, manufactured goods by the domestic industry becomes uncompetitive against imported finished goods.
• Thus it discourages domestic manufacturing.

PRELIMS QUESTION

Consider the following:
1.Weaker Rupee 
2.Efficient Logistic sector
3.Lower Labour Costs
Which of the factors given above will help India to increase its exports?
(a)1 and 2 only
(b)1 and 3 only
(c)2 and 3 only
(d)1,2,3 only

Answer to prelims question