New Delhi: The government will soon undertake a comprehensive assessment of customs duties on key inputs for manufacturing of finished products such as garments, jewellery, metal items and leather goods to enhance cost competitiveness in both domestic and overseas markets, three officials said on Wednesday.

As a matter of principle, tax proposals were not considered in the interim budget on February 1, but a comprehensive review of customs duties in the light of various free trade agreements (FTAs) is due and is expected after May, the officials said, requesting anonymity.

“If some specific changes are required urgently to safeguard any particular sector, a decision could be taken even earlier after thorough scrutiny and stakeholders’ consultations,” one of them said. In order to encourage domestic manufacturing, the government did rationalise import duties on various mobile phone components a day before the interim budget, he added.

The government on January 31 slashed customs duties on various components from 15% to 10% that included battery covers, front and back phone covers, main lens, sealing gaskets, SIM sockets, screws and other mechanical items of plastic and metal for cost competitiveness of finished products and greater ease of compliance.

The issue of duty inversion in the light of FTAs signed way back in 2010 was raised by various stakeholders. The issue has also been flagged by a parliamentary panel earlier this month, a second official said. “The committee is of the view that failure to address this issue could lead to severe negative consequences for the manufacturing industry,” he said.

The panel observed that exporters faced unequal competition in many markets due to duty inversion faced by them in many products where raw material imports attracted higher duties compared to finished goods, he said. For example, in the engineering goods sector, about 80% of total copper tubes and pipes were imported at zero duty under the India-Asean FTA, but their raw materials – such as copper cathode and copper scraps — attracted higher import duties (5-2.5%). A similar situation is seen in the chemical sector, he added.

Domestic leather manufacturers are also facing high duties (between 5% and 30%) on imports of key components, including toe caps, heels, soles and wet blue crust chrome, tanned and value-added leather. Global brands such as Geox, Clarks, H&M, Ecco, Hush Puppies, etc are keen to shift their manufacturing base from China to India, but they insist that manufacturers must use specific components only available abroad, a third official said. A similar situation is faced by the Indian textiles and jewellery sectors, he added.

“Customs duties are not meant for revenue generation. These are calibrated to encourage domestic manufacturing, check dumping of foreign goods, and control prices of essential commodities,” the official said. Indian products are uncompetitive as compared to those from China, Bangladesh, Sri Lanka and Vietnam because of these reasons, he added.

According to the latest government data, the three sectors have seen a double-digit contraction in exports. Leather exports fell year-on-year by about 12% to $3.25 billion in April-December 2023, gem and jewellery by over 16% to $24.30 billion, and garments by 15% to $10.14 billion.

India’s overall merchandise exports during the said period fell 5.7% to $317.12 billion, the data showed.