India has been reducing the basic customs duty over the years, with the average duty standing at nearly 10 per cent. The government has committed to achieve Asean customs duty levels, which are between 4.5 and 5.5 per cent, by 2010.

"We favour a reduction of customs duty only in some items. We want to ensure that the inverted duty structure in large number of areas is corrected," Commerce Minister Kamal Nath said at the sidelines of the Annual General Meeting of Ficci.

An inverted duty structure leads to high import duties on raw materials used by domestic industry and low import duties for finished products in the same sector. As a result, the domestic industry looses its competitiveness, which is needed to tackle cheap imports.

According to Nath, inverted duty structure, which adversely affects the domestic industry needs to be addressed in this budget as India is likely to operationalise key free trade agreements with economic blocks such as Asean.

Significantly, industry associations including Ficci and Cii have been demanding that import duties should not be trimmed in the coming Budget, as the domestic industry is feeling the pressure of cheap imports due to the over 12 per cent appreciation in the rupee against the US dollar.

Industry associations maintain that any reduction in customs duty will lead to a further increase in import volumes, which will hurt the domestic industry.

Sources also said the Commerce Ministry has favoured trimming import duties on raw materials to promote domestic sectors engaged in high value addition activities in sectors such as textiles.

The Finance Ministry has been cutting the import duties in the previous three budgets. In 2005-06, import duties were cut from 20 per cent to 15 per cent and an average of 10 per cent in 2007-08.

Nath added that the 13th Finance Commission, headed by former finance secretary Vijay Kelkar will look in to the possibility of reimbursing the  state level taxes to exporters.

"The issue has been included in the Finance Commission's terms of reference. However, at the same time we have to look into misuse of such an arrangement," Nath said.

There may be announcements on granting tax exemptions  to additional services in the forthcoming Budget, according to Nath. When asked about Finance Ministry proposals to roll back tax breaks enjoyed by the SEZ developers, Nath said, "I am not aware of any such proposals."

However, this is an Act and Finance Ministry cannot modify it. Any changes to the SEZ Act have to be done by the Parliament.  Neither me or any other ministry is empowered to amend the Act.