Potential Economic Impact of Fixing the Inverted Customs Duty Structure: The Case of Indian Viscose Fibers

Dissolving Grade Wood Pulp (DWP) forms about 60% of the raw material cost for the manufacture of Viscose fiber, which in turn feeds into the textile and apparel industry. The wood used in DWP is not available in India due to climatic conditions. More than 85% of DWP requirements in India are met with imports from South Africa, Canada, Brazil, Sweden, and Chile. There is a 2.5% basic customs duty on imports of DWP. On the other hand, VSF imports themselves endure lower tariffs. This has resulted in an inverted duty structure. We have used a Global Trade Analysis Project (GTAP), a Computable Equilibrium Model to estimate the economic impact of fixing this inverted customs duty structure in India. Results from the model estimates show an increase in GDP of about 18 million USD and exports of 10.75 million USD at the aggregate level for the Indian economy.