The Global Trade Research Initiative (GTRI) has issued a strong call for India to completely revamp its import tariff system and customs administration. The think tank argues this move is essential to lower trade expenses, boost manufacturing competitiveness, and stimulate export growth.
Key Recommendations for Tariff Reform
In a detailed report released on Saturday, GTRI outlined a clear blueprint for modernizing India's trade policies. The report proposes a gradual shift toward eliminating duties on most industrial raw materials and key intermediate goods. For finished industrial products, it suggests adopting a low, standard duty rate of approximately five percent over the next three years.
Addressing Inefficient Duty Structures
GTRI highlighted the critical problem of inverted duty structures. This occurs when imported inputs face higher tariffs than the finished goods they help produce. The think tank warns this practice quietly undermines domestic manufacturing by making local production less cost-competitive.
The report also calls for rationalizing extreme tariff rates. It cites the example of a 150 percent duty on alcohol, arguing such high levies encourage evasion while providing minimal fiscal benefits to the government.
Focus on Total Import Duty Burden
GTRI emphasizes that tariff reform must look beyond the basic customs duty. Importers currently face a cumulative load of various cesses, surcharges, and trade remedies. This makes the effective tariff far more complex and burdensome than what official rate schedules indicate.
The think tank points out that customs duties now contribute only about six percent of gross tax revenue. On average, they represent just 3.9 percent of the total value of imports. This indicates tariffs are no longer a major revenue tool for the government.
Inefficiencies in the Current System
GTRI founder Ajay Srivastava noted that nearly ninety percent of import value is concentrated in fewer than ten percent of tariff lines. Conversely, the bottom sixty percent of tariff lines generate less than three percent of customs revenue. Maintaining such a complex structure for limited fiscal return imposes high administrative and compliance costs on businesses and the government.
Simplifying Customs Procedures
The report strongly advocates for simplifying India's customs procedures. Traders currently navigate a maze of overlapping notifications, often dealing with decades-old amendments that lack clear harmonized system (HS) code references. This creates confusion and delays at ports.
To address this, GTRI recommends the government issue self-contained notifications. It also urges publishing all applicable import duties in a single, unified online schedule. Improving transparency around the renewal of time-bound duty exemptions is another key suggestion.
Additional Measures for Trade Efficiency
To reduce disputes and delays, the report recommends aligning India's duty drawback system with standard eight-digit HS codes. The current practice of using separate coding for refunds increases errors and processing time.
GTRI further suggests liberalizing approval norms for inland container depots and freight stations. This would support modern supply chain requirements. The think tank also proposes redeploying customs officers toward more strategic functions like audits and origin verification. Posting officers overseas could help Indian exporters address non-tariff barriers in foreign markets.
The report, co-authored by former IRS (Customs) officer Satish Reddy, arrives at a crucial time. India's merchandise trade has crossed USD 1.16 trillion, with nearly twenty-nine percent of GDP flowing through customs clearances. As global companies reassess sourcing strategies amid geopolitical shifts, making customs processes efficient becomes critically important for India's economic ambitions.
