GTRI calls for overhaul of tariff structure, customs to boost India's trade

India, with its ambitious vision to become a global manufacturing hub and a significant player in international trade, has been actively pursuing policies like 'Make in India' and Production Linked Incentive (PLI) schemes. However, the path to achieving these goals is often fraught with complex challenges, particularly concerning its trade ecosystem. It is against this backdrop that the Global Trade Research Initiative (GTRI), a prominent economic think-tank, has called for a comprehensive overhaul of India's import tariffs and customs administration. This recommendation is not merely a technical adjustment but a strategic imperative to enhance India's competitiveness, boost domestic manufacturing, and integrate more effectively into evolving global supply chains.

The current tariff structure and customs procedures in India, while having undergone reforms over the years, are often criticized for their complexity, multiplicity of notifications, and occasional lack of clarity. This complexity can lead to higher compliance costs, delays, and uncertainty for businesses, both domestic and international. For instance, an 'inverted duty structure,' where duties on finished goods are lower than on their raw materials or intermediate inputs, can disincentivize domestic manufacturing. The GTRI report essentially highlights these friction points, advocating for a significant simplification of duties and the elimination of superfluous notifications that often create bureaucratic hurdles. The core idea is to shift towards a 'growth-focused' customs system, one that facilitates trade rather than impeding it.

Key stakeholders in this proposed reform include the GTRI itself, which acts as a research and advocacy body providing data-driven policy recommendations. The Government of India, particularly the Ministry of Finance (which sets tariffs and administers customs through the Central Board of Indirect Taxes and Customs - CBIC) and the Ministry of Commerce and Industry (responsible for foreign trade policy), are the primary implementers. Domestic manufacturers and exporters stand to gain immensely from simplified procedures and competitive tariffs, as these reforms can reduce their input costs and improve their ease of doing business. Importers, too, would benefit from greater predictability and transparency. Ultimately, Indian consumers could also see benefits through potentially lower prices of goods and wider availability, while the nation as a whole benefits from increased economic activity and job creation.

This initiative holds immense significance for India's economic trajectory. A streamlined tariff structure can make Indian goods more competitive in global markets, thereby boosting exports. It can also attract Foreign Direct Investment (FDI) by signaling a business-friendly environment and reducing operational complexities for multinational companies looking to set up manufacturing bases in India. Improved customs administration directly impacts India's ranking in global indices like the World Bank's 'Ease of Doing Business' report (though now discontinued, its principles remain relevant), which assesses the efficiency of trade across borders. By reducing logistical bottlenecks and turnaround times, India can enhance its appeal as a reliable partner in global supply chains, especially in a post-COVID world where diversification of supply chains away from single dominant regions is a priority for many nations.

Historically, India's trade policy has evolved significantly. Post-independence, India largely adopted a protectionist stance, characterized by high tariffs and import substitution policies. The economic reforms of 1991 marked a paradigm shift towards liberalization, progressively reducing tariffs and opening up the economy. The Customs Act, 1962, is the primary legislation governing customs duties and procedures in India, and it has been amended numerous times to adapt to changing economic realities and international commitments, including those under the World Trade Organization (WTO). Further, the Foreign Trade (Development and Regulation) Act, 1992, empowers the government to formulate and implement the Foreign Trade Policy. Any overhaul of tariffs would be implemented under the authority granted by these acts, adhering to the constitutional principle enshrined in Article 265, which states that no tax shall be levied or collected except by authority of law.

The future implications of such reforms are far-reaching. Successful implementation could significantly accelerate India's journey towards a $5 trillion economy, fostering robust growth in manufacturing and services. It could strengthen India's position in ongoing and future Free Trade Agreement (FTA) negotiations by demonstrating its commitment to global trade integration. However, the government would need to carefully balance the interests of domestic industries that still require a degree of protection with the overall goal of enhancing competitiveness. Revenue implications for the exchequer from tariff reductions would also need meticulous planning. Ultimately, a 'growth-focused' customs system is not just about tariffs; it's about building a robust, transparent, and efficient trade infrastructure that can support India's aspirations on the global stage, aligning with broader themes of good governance and sustainable economic development.