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Inverted duty structure (input tax exceeds output)
What it is
A tariff structure where finished goods attract lower import duty than the components used to make them, so importing the finished product is cheaper than manufacturing it domestically. In medical devices, finished equipment has attracted duty of around 0-7.5% against components at similar or higher rates
GST inversion compounds it, since accumulated input tax credit is refundable only through a claim process that ties up working capital
Impact on industries
- Penalises domestic value addition - a local assembler pays more tax on parts than an importer pays on the finished good, so scale never builds behind the tariff
- Locks up working capital in unutilised input credit, which bites hardest on thin-margin, high-input-cost manufacturers and MSMEs least able to fund the float
- Blunts other policy - PLI pushes capacity in while the duty structure pulls economics out; it is repeatedly cited as a core constraint on Indian medtech
- Correctable by notification rather than legislation, so a budget cycle can fix it and duty rationalisation improves domestic economics immediately