GTRI Advocates for Trade Policy Overhaul: Simplifying Tariffs and Customs to Reduce Costs and Boost Exports
India’s trade landscape is poised for significant transformation, according to a recent report from the Global Trade Research Initiative (GTRI). The think tank emphasizes the urgent need for a comprehensive reform of the country’s import tariff structure and customs administration. This overhaul aims to reduce trade costs, enhance manufacturing competitiveness, and stimulate export growth. GTRI’s recommendations include moving towards zero duty on most industrial raw materials and implementing a standard duty of around 5 percent on finished goods over the next three years.
Recommendations for Tariff Reform
In its report titled “A Blueprint for Modernizing India’s Import Tariffs and Customs Regime,” GTRI advocates for a gradual shift towards zero duty on essential industrial raw materials and key intermediates. The think tank suggests that a low, standard duty of approximately 5 percent on finished industrial goods should be adopted within the next three years. This approach aims to eliminate the inverted duty structures that currently penalize domestic manufacturers by imposing higher tariffs on inputs compared to finished products. GTRI argues that such practices undermine the competitiveness of local industries and should be addressed promptly.
The report also highlights the need to rationalize extreme tariff rates, such as the staggering 150 percent duty on alcohol. GTRI contends that these high levies not only encourage tax evasion but also provide minimal fiscal benefits. The focus of tariff reform should extend beyond the basic customs duty to encompass the total import duty burden, which includes various cesses, surcharges, and trade remedies. This complexity often results in effective tariffs that are significantly higher than the official rates, creating challenges for importers.
Impact on Trade and Revenue
GTRI’s analysis reveals that India’s merchandise trade has surpassed USD 1.16 trillion, with customs clearances accounting for nearly 29 percent of the country’s GDP. This underscores the critical importance of efficiency in customs operations, especially as global companies reassess their sourcing strategies amid geopolitical uncertainties. The report points out that customs duties currently contribute only about 6 percent to the gross tax revenue, averaging 3.9 percent of the value of imports. This indicates that tariffs are losing their effectiveness as a revenue-generating tool.
Moreover, the report notes that a significant portion of import value is concentrated in a small number of tariff lines. Nearly 90 percent of import value is tied to less than 10 percent of these lines, while the bottom 60 percent contribute less than 3 percent of customs revenue. This inefficiency in the current tariff structure imposes high administrative and compliance costs, as highlighted by GTRI founder Ajay Srivastava.
Simplifying Customs Procedures
To enhance the efficiency of customs operations, GTRI calls for a simplification of customs procedures. The report criticizes the existing maze of overlapping notifications that complicate the trading process. Traders often find themselves navigating outdated amendments without clear references to harmonized system (HS) codes. GTRI urges the government to issue self-contained notifications and to publish all applicable import duties in a single, unified online schedule. This would improve transparency and accessibility for traders.
Additionally, the report recommends aligning India’s duty drawback system with standard eight-digit HS codes to minimize errors and delays in refunds. The current separate coding system for refunds has been identified as a source of confusion and inefficiency. GTRI also suggests liberalizing approval norms for inland container depots and freight stations to support modern supply chains. Furthermore, it proposes redeploying customs officers to focus on audits and origin verification, as well as posting officers overseas to assist exporters in overcoming non-tariff barriers.
The report, co-authored by former IRS (Customs) officer Satish Reddy, presents a comprehensive vision for reforming India’s import tariff and customs regime, aiming to bolster the country’s economic competitiveness on the global stage.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
