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Have you ever wondered . When your smart phone`s screen gets damaged and you want to get a replacement. The new screen cost you about 65% to even more than cost of mobile and you wonder how can this be possible. You would be amazed to know this is due to just one term Inverted Duty Structure (IDS). IDS recently got highlighted in the news. When the Union Budget has reinforced the correction of the Inverted Duty Structure which has adversely impacted manufacturing for decades.  Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods. Such a condition is not a conductive situation to support Home based manufacturing Industry.
Key concerns
Chinese/other imports have swamped India’s small- and medium-sized enterprises and large manufacturing companies, raising the import-intensity of manufacturing as well as dampening job growth by raising capital intensity. The goods and services tax (GST), especially the IGST or Integrated GST component, has begun to erode the advantage that the IDS was giving to foreign exporters in Indian markets. Customs duties have been raised on capital goods and electronics, and silica for use in manufacture of telecom grade optical fiber. These have been among the sectors adversely impacted by the IDS in the past 10 years or so.
Advantage for China
India’s policy structure failed to utilize its labour advantage to grow labour-intensive manufacturing exports.As a result, while China reduced the absolute numbers and percentage of the poor in the population by absorbing surplus labour in manufacturing, India’s poverty reduction was much slower. While China’s agricultural and rural income growth was much higher as it sustained consumer demand, it also generated industrial jobs much faster. While India grew construction jobs very fast since 2000, all the way to 2011-12, manufacturing output and employment growth left much to be desired.Moreover, analysis shows that between 2004-05 and 2011-12, but much more between 2011-12 and 2015-16, the growth of manufacturing jobs not only first slowed after 2011-12 but also became negative.
Need more jobs
The share of the workforce in agriculture has been falling steadily, from 60% in 1999-2000 to 49% in 2011-12. But the fall has slowed sharply after 2011-12, when the pace of non-agricultural job growth slowed along with GDP growth. Since 2012, the numbers leaving agriculture over 2011-12 to 2015-16 fell to 1 million per year, as non-agriculture jobs grew slowly since 2011-12.It appears that as GDP growth slowed after 2011-12, youth who had benefited significantly from jobs in manufacturing have suffered disproportionately. This dropped precipitously to 10.8%, just as the share of all employment in manufacturing fell, between 2011-12 and 2015-16. The only sector with a significant increase in labour absorption, especially the young, has been services, where employment rose from 36 million in 2011-12 to nearly 52 million in 2015-16 for them, and for all labour from 127 million to 141 million. Further, Decline in jobs means country need to produce more jobs significantly in labour intensive sector that is manufacturing.
Way ahead
The resolution of the twin balance sheet problems together with the Insolvency and Bankruptcy Code, should now pave way for new manufacturing investment. Policy must attempt to close the loop between rising demand and supply through consumer demand, which the Budget attempts through its agriculture and rural infrastructure focus.More manufacturing policy initiatives, such as an early announcement of an Industrial Policy by the Department of Industrial Policy and Promotion, must be sustained over 2018.
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