New Delhi, Jan 17 (PTI) - India must undertake a comprehensive reform of its import tariff structure and customs administration to lower trade costs, boost manufacturing competitiveness, and rejuvenate export growth, according to think tank GTRI. The Global Trade Research Initiative made this recommendation on Saturday, highlighting the urgent need for change.
Key Recommendations for Tariff Reform
GTRI proposes moving toward zero duty on most industrial raw materials and key intermediates. It also suggests adopting a low standard duty of approximately 5 percent on finished industrial goods over the next three years. This shift aims to simplify the current complex system.
Addressing Inverted Duty Structures
The think tank emphasizes eliminating inverted duty structures, where inputs face higher taxes than finished products. These structures quietly undermine domestic manufacturing competitiveness by increasing production costs unnecessarily.
Rationalizing Extreme Tariffs
Extreme tariffs, such as the 150 percent duty on alcohol, should be rationalized. GTRI argues that such high rates encourage evasion while providing minimal fiscal benefits to the government.
Focus on Total Import Duty
Tariff reform should consider the total import duty, not just the basic customs duty. Importers deal with a cumulative burden of cesses, surcharges, and trade remedies. This makes the effective tariff far more complicated than official rate schedules indicate.
Current Trade Context
A GTRI report notes that India's merchandise trade has surpassed USD 1.16 trillion. Nearly 29 percent of the gross domestic product flows through customs clearances. In this context, even small inefficiencies impose economy-wide costs. They raise input prices, delay shipments, and weaken export competitiveness.
Global companies are reassessing sourcing locations amid geopolitical fragmentation. This makes efficiency crucial for India's trade performance.
Tariffs as a Revenue Tool
Customs duties now account for just 6 percent of gross tax revenue. They average only 3.9 percent of the value of imports. Tariffs are no longer a significant revenue tool for the government.
Skewed Distribution of Tariff Revenue
The distribution of tariff revenue is highly skewed. Nearly 90 percent of import value concentrates in fewer than 10 percent of tariff lines or product categories. Meanwhile, the bottom 60 percent of tariff lines generate under 3 percent of customs revenue.
Maintaining a complex tariff schedule for such limited fiscal return imposes high administrative and compliance costs. GTRI founder Ajay Srivastava highlighted this point in the report.
Simplifying Customs Processes
GTRI suggests easing customs rules and processes to help traders comply smoothly. The current system involves a labyrinth of customs notifications. Many amend decades-old rules and are not self-contained.
Traders must navigate hundreds of overlapping notifications to determine applicable duties. Often, these lack clear harmonized system (HS) code references.
Recommendations for Transparency
GTRI urges the government to issue self-contained notifications that clearly state their full impact. It also calls for publishing all applicable import duties in a single, unified online schedule.
Greater transparency around the renewal of time-bound duty exemptions is essential. This should include brief public explanations of why they remain necessary.
Reducing Disputes and Improving Systems
The report recommends aligning India's duty drawback system with the standard eight-digit HS codes used for imports and exports. Currently, exporters use a separate coding system for refunds, increasing errors and delays.
Supporting Modern Supply Chains
Approval norms for inland container depots and freight stations should be liberalized. This supports modern, niche supply chains instead of forcing one-size-fits-all logistics infrastructure.
Redeploying Customs Officers
Customs officers should be redeployed toward audits, origin verification, and inland clearance points. Srivastava suggests posting customs officers overseas at Indian embassies and major ports. This helps exporters resolve non-tariff barriers and learn global best practices.
The report is co-authored by former IRS (Customs) officer Satish Reddy. It provides a blueprint for modernizing India's import tariffs and customs regime to meet contemporary trade challenges.
