To rectify the inverted duty structure hurting manufacturing in various sectors, Finance Minister Nirmala Sitharaman on Tuesday announced the reduction in custom duty on a range of input materials from critical minerals, electronics, chemicals, to precious metals such as gold, and silver among others.
Inverted duty structure is a phenomenon caused due to the difference in tax rates applied on the production of a good which uses imported materials as inputs. Inverted duties refer to a situation where the import tariff on inputs is higher than the tax levied on the final output.
Aimed at boosting exports of the labour-intensive gems and jewellery industry that has been taking a hit due to weak demand in the West, Sitharaman announced a reduction in customs duties on gold and silver to 6 per cent from the current level of 15 per cent and that on platinum to 6.4 per cent from 15.4 per cent.
Stating that with a three-fold increase in domestic production and an almost 100-fold jump in exports of mobile phones over the last six years, the Indian mobile industry has matured, the Finance Minister announced a reduction in the basic customs duty on mobile phone, mobile phone PCBA (printed circuit board assembly), and mobile phone chargers to 15 per cent. These components attracted a Basic Custom Duty (BCD) of 20 per cent earlier.
Another crucial duty cut was made in a long-standing industry demand in the critical mineral segment. Fully exempting customs duties on 25 critical minerals, Sitharaman said that minerals such as lithium copper, cobalt and rare earth elements are critical for sectors like nuclear energy, renewable energy, space defence, telecommunications and high-tech electronics.
BCD on two other critical minerals was also reduced in order to provide a “major fillip to the processing and refining of such minerals” and help secure their availability for these strategic and important sectors.
“Steel and copper are important raw materials to reduce the cost of production, I propose to remove The BCD on ferronickel and blister copper. I’m also continuing with nil BCD on ferrous scrap and nickel cathode and concessional BCD of 2.5 per cent on copper scrap,” Sitharaman said.
Like most countries around the world, India is heavily dependent on imports from China to meet rising demand for critical minerals. “Further, China’s overwhelming dominance in the supply of processed critical minerals and materials for energy transition renders a true decoupling between the two nations neither easy nor likely,” the Economic Survey 2024-25 said.
Sitharaman reduced duty on input material for the marine industry and leather and textile sector too.
“India’s seafood exports in the last financial year touched an all-time high of more than Rs 60,000 crore. Frozen shrimp accounted for about two-thirds of these exports. To enhance their competitiveness, I propose to reduce BCD on certain broodstock, folicate, worms, shrimp and fish feed to 5 per cent. I also propose to exempt customs duty on various inputs for the manufacture of shrimp and fish feed,” Sitharaman said.
Similarly, to enhance the competitiveness of exports in the leather and textile sectors, Sitharaman proposed to reduceBCD on real down filling material from duck or goose.
“I am also making additions to the list of exempted goods for the manufacture of leather and textile garments, footwear and other leather articles for export. To rectify inversion in duty, I propose to reduce BCD subject to conditions on Methyl Diphenyl Isocyanate (MDI) for the manufacture of spandex yarn from 7.5 per cent to 5 per cent,” she said.
Furthermore, the export duty structure on rawhide, skin and leather is proposed to be simplified and rationalized, she added.
However, the Confederation of Indian Textile Industry (CITI) said that the stagnation in the textile and apparel industry needed some bold measures for capacity building, modernisation and cost competitiveness.
“MSME accounts for about 80% of the Indian Textile Industry. The credit assurance schemes announced today will provide the much-needed impetus to the growth of a large number of textile and garment MSMEs and enable them to expand their operations and innovate,” Rakesh Mehra, Chairman of CITI said.
Gold prices plummeted by over five per cent after Finance Minister Nirmala Sitharaman announced a sharp import duty cut in gold and silver prices.
Gold prices declined by 5.72 per cent, or Rs 4,162, at Rs 68,556 per 10 grams on the MCX platform amid speculation that gold imports will rise after the duty revision. Silver prices fell by 4.77 per cent to Rs 84,949 per kg after the duty cut.
Gold loan companies reacted sharply on the stock exchanges. Muthoot Finance fell 4.25 per cent and Manappuram Finance by 5.62 per cent.
Moreover, the Budget says that with rationalisation of rate to 12.5 per cent, indexation available under second proviso to Section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets.
Hareesh V, Head of Commodities, Geojit Financial Services, said, “Customs duty reduction in gold may lead to a decline in domestic prices and perhaps lift demand. The existing duty on gold and silver is 15 percent which comprises 10 per cent of basic custom duty and 5 percent as Agricultural Infrastructure Development cess.”
“The broad view remains volatile and weak as Comex gold stays below $2415. The interest rate cut in the US will be keenly anticipated, now that Indian gold has become discounted, presenting a more favourable long-term buying opportunity for gold in Indian markets,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.
Gold loan companies reacted sharply on the stock exchanges. Muthoot Finance fell 4.25 per cent and Manappuram Finance by 5.62 per cent.
According to the World Gold Council (WGC), gold demand in India saw a significant rise by 8 per cent, reaching 136.6 tonnes in the January – March quarter of calendar year 2024. The higher demand was supported by a robust economic backdrop, despite gold prices reaching historic highs. The Reserve Bank of India’s (RBI) purchased over 19 tonnes of gold during the initial quarter of the current calendar year 2024.
Sitharaman said in her Budget speech that the government will undertake a comprehensive review of the rate structure over the next six months to rationalise and simplify it for ease of trade. 
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