India needs an overhaul of its import tariff structure and customs administration to reduce trade costs, strengthen manufacturing competitiveness and revive export growth, think tank Global Trade Research Initiative (GTRI) suggested.
It also recommended movement toward zero duty on most industrial raw materials and key intermediates, while adopting a low standard duty of around 5 per cent on finished industrial goods over the next three years.
The think tank also pitched for eliminating inverted duty structures, where inputs are taxed more heavily than finished products, quietly eroding domestic manufacturing competitiveness.
Extreme tariffs, such as the 150 per cent duty on alcohol, should be rationalised, GTRI said, arguing that such rates encourage evasion while delivering negligible fiscal gain.
Equally important, tariff reform should be based on total import duty, not just headline basic customs duty.
Importers face a cumulative burden of cesses, surcharges and trade remedies, making the effective tariff far more complex than official rate schedules suggest, it said.
According to Ajay Srivastava, founder of GTRI, “India’s import tariffs have lost relevance as a revenue instrument while continuing to distort production decisions. Customs duties now account for just 6 per cent of gross tax revenue and average only 3.9 per cent of the value of imports.”
Given that India’s merchandise trade has crossed $1.16 trillion, and nearly 29 per cent of gross domestic product flows through customs clearances, even modest inefficiencies now impose economy-wide costs, raising input prices, delaying shipments and weakening export competitiveness at a time when global companies are reassessing sourcing locations amid geopolitical fragmentation, a report titled “A Blueprint for Modernising India’s Import Tariffs and Customs Regime” by GTRI said.
The distribution of tariff revenue is highly skewed as nearly 90 per cent of import value is concentrated in fewer than 10 per cent of tariff lines or product categories, while the bottom 60 per cent of tariff lines generate under 3 per cent of customs revenue.
Maintaining a complex tariff schedule for such limited fiscal return imposes high administrative and compliance costs, the report argued.
It suggested easing customs rules and processes to help traders comply with the provisions smoothly.
The labyrinthine system of customs notifications, many of which amend decades-old rules and are not self-contained, as traders have to navigate hundreds of overlapping notifications to determine applicable duties, often without clear HS (harmonised system)-code references.
GTRI has urged the government to issue self-contained notifications that clearly state their full impact, and to publish all applicable import duties in a single, unified online schedule.
It also called for greater transparency around the renewal of time-bound duty exemptions, including brief public explanations of why they remain necessary.
To reduce disputes, the report recommended aligning India’s duty drawback system with the standard eight-digit HS codes already used for imports and exports.
At present, exporters use a separate coding system for refunds, increasing errors and delays.