India must correct its import duty structure on Key Industrial Raw Materials (KRMs) which include customs, anti-dumping or safeguard duties. Duties on KRMs must be low and on value added products (VAPs) high. However, in India the KRMs attract high duty and the VAPs low duty. This anomaly is called Inverted Duty Structure (IDS).

High import duty on KRMs closes global sourcing option for the user industry. Expensive KRMs make products expensive. Exports become uncompetitive. As there are low duties on VAPs, the user industry becomes vulnerable.

The cost of producing a KRM is high in India due to high prices of factors of production. Other countries with excess production capacity try to dump subsidised KRMs in India. KRM producers in India seek protection. The govt. responds by introducing antidumping duty. FTAs or free-trade-agreements increase the duty gap between a KRM and corresponding VAP by allowing custom duty free on most VAPs.

If duties are lowered on KRMs, cheap imports will replace large domestic industries.

We have to understand that all KRMs do not need protection from imports.