India Plans Major Trade Reform to Cut Import Costs
India requires comprehensive reform of its import tariff structure and customs administration to reduce trade costs and strengthen manufacturing competitiveness, according to a new report from the Global Trade Research Initiative.
The think tank recommends implementing zero duty on most industrial raw materials and key intermediates, while establishing a standard duty of approximately 5 per cent on finished industrial goods over the next three years.
Current System Creates Inefficiencies
The report highlights significant structural problems in India's current approach. Inverted duty structures, where inputs face higher taxes than finished products, are quietly undermining domestic manufacturing competitiveness.
Extreme tariffs, including the 150 per cent duty on alcohol, require rationalisation as such rates encourage evasion while delivering minimal fiscal benefit.
Economic Impact
India's merchandise trade has reached USD 1.16 trillion, with nearly 29 per cent of gross domestic product flowing through customs clearances. Even modest inefficiencies now impose economy-wide costs, raising input prices and delaying shipments.
Customs duties currently account for just 6 per cent of gross tax revenue and average only 3.9 per cent of import values. The distribution remains highly concentrated, with 90 per cent of import value concentrated in fewer than 10 per cent of tariff categories.
Administrative Reform Needed
The current system of customs notifications creates complexity for traders who must navigate hundreds of overlapping regulations without clear references. The report calls for self-contained notifications and a unified online duty schedule.
Additional recommendations include aligning the duty drawback system with standard eight-digit codes, liberalising approval norms for container depots, and redeploying customs officers toward audits and verification.
The report suggests posting customs officers overseas at Indian embassies and major ports to assist exporters with non-tariff barriers and international best practices.