Reinstatement of benefits under the Merchandise Export Incentive Scheme, lowering of goods and services tax (GST) on entry-level mobile phones and support to local mobile phone companies topped the budget wish list of the IT and electronics industry. However, the official said there are concerns that an increase in customs duties will result in affected imported goods being routed through free trade agreement countries to benefit from a lower duty regime, which would defeat the purpose of the exercise.

The official said the idea of the rationalisation is to address inverted duty structures, where the import duty on finished goods is lower than that on raw material used to produce such finished goods. A panel on import substitution, headed by the cabinet secretary, is also likely to provide inputs on the matter.

“A detailed examination of goods in respect of duty structures under the free trade agreements is being carried out,” another government official said. India has increased import tariffs or imposed duties by withdrawing the exempt status of goods over the past few years to encourage local manufacturing.

In the previous budget, higher basic customs duties were levied on items ranging from stainless steel to CCTV cameras to outdoor units of split air-conditioners. Customs duty exemption was withdrawn on goods such as switches, sockets and plugs and on capital goods used in the manufacture of electronic items, including cathode ray tubes and plasma display panels.

Experts said a calibrated view needs to be taken to encourage local manufacturing. “The tariff regime needs to give way to incentives to create the necessary manufacturing ecosystem in the country,” said Bipin Sapra, a partner at EY.