The Federation of Indian Export Organizations (FIEO) has made a strong appeal to the government to address critical long-standing issues facing the export sector in the forthcoming Union Budget. Based in Ludhiana, the apex body has highlighted the urgent need to correct the inverted customs duty structure, which it says severely undermines the cost competitiveness of Indian exporters across multiple industries.
Understanding the Inverted Duty Problem
According to FIEO president S C Ralhan, the inverted duty structure represents a significant policy anomaly that requires immediate governmental attention. This problem occurs when import duties on raw materials, components, or intermediate goods are set higher than those levied on finished products. Ralhan emphasized that this structural flaw creates unnecessary financial burdens for domestic manufacturers.
Recommendations for Duty Rationalization
Ralhan has recommended comprehensive rationalization of customs duties, with particular emphasis on reducing import tariffs on critical inputs used by export-oriented industries. He stressed that aligning input duties with those on finished products would ensure that manufacturers do not bear avoidable cost burdens that ultimately weaken their global market position.
Broader Economic Implications
Explaining why this structural correction is essential, Ralhan pointed out that inverted duty regimes not only increase production costs but also lock up valuable working capital in the form of accumulated input tax credits. This dual impact, he added, significantly weakens the overall competitiveness of Indian exporters in international markets. He noted that several key industries continue to face such anomalies, creating systemic disadvantages.
Sector-Specific Challenges
Textile and Apparel Sector: Synthetic yarn and fibre currently attract higher customs duties than finished fabrics and garments, creating disruptions throughout the value chain and affecting India's position in global textile markets.
Electronics Manufacturing: Duties on essential components such as printed circuit boards (PCBs), connectors, and sub-assemblies remain higher than those on imported finished electronic products. This discrepancy discourages domestic manufacturing and value addition in a sector crucial for India's technological advancement.
Chemical and Plastics Industry: Basic raw chemicals and polymers face higher duties compared to downstream finished products, putting domestic manufacturers at a competitive disadvantage against international players.
Leather and Footwear Sector: The industry struggles with higher duties on components and accessories than on imported finished footwear, creating structural barriers to growth and export expansion.
Proposed Solutions and Benefits
Ralhan stressed that lowering or restructuring input duties would deliver multiple benefits: easing production costs, reducing working-capital pressure, supporting domestic manufacturing initiatives, and strengthening overall export competitiveness. He emphasized that such corrections would create a more level playing field for Indian industries competing in global markets.
Additional Fiscal Recommendations
Beyond duty structure corrections, FIEO has also recommended that the government extend the 15% concessional corporate tax rate for new manufacturing units. The organization argues this benefit should continue for at least another five years to provide policy stability and enhance India's attractiveness for global manufacturing investments.
According to Ralhan, India is actively competing for global manufacturing investments and supply-chain relocation opportunities. Discontinuing the concessional tax regime, he warned, would diminish the country's attractiveness to international investors. Extending the tax benefit would improve post-tax returns on investment and support the government's Make in India and export-led growth objectives.
He added that this measure would complement existing Production Linked Incentive (PLI) schemes by creating a coherent fiscal framework that encourages new investments, employment generation, and higher value-added manufacturing across sectors. The combined effect of duty corrections and tax benefits, Ralhan concluded, would position India more competitively in the global export landscape while strengthening domestic industrial capabilities.
