Finance minister Nirmala Sitharaman is likely to address the problem of the inverted duty structure in the budget to boost domestic manufacturing — especially in sectors such as electronics, textile staple fibres and certain chemicals.

An inverted duty structure leads to a higher import tariff on an intermediate good vis-a-vis the finished item, which discourages domestic manufacturing.

Sources said the commerce ministry has submitted a list to the finance ministry where the finished products are subject to a lower import duty than the materials needed to make them.

It has also submitted a list of items where the inverted duty structure exists because of free trade agreements. The ministry had undertaken a cross-sectoral study to rationalise such inverted duty structures.

Some furniture and jewellery items, petrochemicals and medical equipment are part of the list.

An announcement is likely in the July 23 budget once discussions are finalised, sources said.

Kartik Solanki, partner, indirect tax, BDO India said: “It is expected that the government would further try and correct instances of inverted duty structure in the current budget.”

Industry bodies have listed sectors where the inverted duty structure impacts domestic production.

In calcined petroleum coke, the import duty is at 7.5 per cent and the duty on the finished product (aluminium) is also 7.5 per cent.

In raw petroleum coke, the duty is 10 per cent and duty on finished product (CP Coke) is 7.5 per cent.

This increases production costs for domestic producers. The inverted duty of raw and calcined pet coke needs to be rationalised and reduced to 2.5 per cent.

Free trade agreements has created an inverted duty structure in copper smelting — the duty on inputs of copper smelting exceeds that on finished products.

It is recommended to reduce MFN (most favoured nation) duty on copper concentrate from 2.5 per cent to 0 per cent and reduce MFN duty on blister copper from 5 per cent to 0 per cent

Lopsided duties have emerged in viscose staple fibre because of FTA with Asean.

India currently has zero duty for VSF products imported under the FTA with Asean, but the duty on raw material is higher at 2.5 per cent.