Make In India: Customs Duty Exemption Removal On Select Imported Components Planned To Boost Local Manufacturing

The Indian government is considering the removal of customs duty exemptions on certain imported components to encourage domestic manufacturing as part of the "Make in India" initiative.

Components under review include bulk drugs used for insulin production, raw materials for lab-grown diamonds, plastics for optical fibre manufacturing, and goods for coal mining and power generation.

Currently, these items attract a basic customs duty of 0 to 5 per cent. The finance ministry is examining investment data, domestic production capacity, and industry inputs for 31 products with conditional customs duty rates and exemptions set to expire by 30 September 2025.

"The exercise to review customs duties is going on to decide whether the exemptions should continue or be allowed to lapse. We have sought input from industry," an official stated.

In the previous budget, the government removed basic customs duties on ferro nickel and blister copper to lower production costs for steel and copper. Similarly, duties on X-ray tubes and flat panel detectors for medical X-ray machines were reduced under the Phased Manufacturing Programme for medical devices launched in 2021.

Experts suggest that the government will assess the impact on the "Make in India" initiative, including domestic value addition. "One of the key considerations for the government would be to assess the impact on 'Make in India' initiative including the quantum of value addition taking place in the country," said Pratik Jain, partner at PwC India.

Conditional exemptions are currently applied to life-saving medicines, chemicals for telecom-grade optical fibre, shuttle-less looms, seeds for lab-grown diamonds, and vessels.

The government is also reviewing products like weaving, knitting, and sewing machines, components for wind electricity generators, ferry boats, cruise ships, and certain auto parts.

"The phasing out of conditional notifications of customs will help in domestic industries 'Make in India' for products which were till now being imported from overseas and are critical for businesses in India.

Since the finance ministry has published the phasing out schemes sometime back, the industries have had time to prepare for this transition," said Bipin Sapra, partner at EY.

While experts highlight the potential benefits for local manufacturing, they also emphasize the need for caution. "There are concessional duties on some products. As long as imports don't threaten domestic production, they can be allowed," said a representative of the cotton textile industry.