Whalesbook
Trade Policy Overhaul Recommended
The Global Trade Research Initiative (GTRI) has issued a stark call for a comprehensive reform of India's import tariff structure and customs administration. The think tank's report, "A Blueprint for Modernizing India's Import Tariffs and Customs Regime," advocates for significant changes aimed at reducing trade costs and reigniting the nation's flagging export growth.
Tariff Rationalization
GTRI proposes a phased transition towards zero import duties on most industrial raw materials and key intermediates. Concurrently, it suggests adopting a low, standard duty rate of approximately 5% for finished industrial goods over the next three years. The report also emphasizes the need to eliminate inverted duty structures, where taxes on inputs are higher than on final products, which it argues undermines domestic manufacturing.
Extreme tariff rates, such as the 150% duty on alcohol, should be rationalized. GTRI contends these high levies encourage evasion with minimal fiscal benefit. The focus should be on the total import duty burden, including cesses and surcharges, not just basic customs duty, as these increase the effective tariff far beyond stated rates.
Customs Procedure Simplification
Efficiency at customs is critical, especially as global companies reassess sourcing amid geopolitical shifts. India's merchandise trade has surpassed $1.16 trillion, with nearly 29% of GDP passing through customs clearances. GTRI highlights that customs duties now contribute only about 6% to gross tax revenue, averaging just 3.9% of import value, indicating they are no longer a primary revenue source.
The current complex tariff schedule, where 90% of import value is concentrated in less than 10% of tariff lines, imposes high administrative and compliance costs for limited fiscal returns. The report urges the government to issue self-contained notifications, provide a unified online schedule of all import duties, and improve transparency regarding duty exemptions.
GTRI also called for aligning India's duty drawback system with standard eight-digit HS codes to reduce disputes and delays. Simplifying procedures for inland container depots and freight stations, redeploying customs officers to audits, and stationing officers abroad to assist exporters with non-tariff barriers were also recommended.