Overhaul of import tariff structure, customs processes to cut trade costs, boost manufacturing, exports: GTRI

The Global Trade Research Initiative (GTRI)'s recommendation for a comprehensive overhaul of India's import tariff structure and customs processes marks a significant pivot in the nation's economic policy discourse. This proposal, aimed at cutting trade costs and boosting domestic manufacturing and exports, signals a strategic shift from viewing customs duties primarily as a revenue-generating tool to an instrument for trade facilitation and economic growth.

Historically, India's trade policy, especially post-independence until the early 1990s, was characterized by high tariffs and import substitution industrialization. The rationale was to protect nascent domestic industries from foreign competition. The economic liberalization of 1991, however, initiated a gradual but consistent reduction in tariffs as India integrated more deeply into the global economy and became a member of the World Trade Organization (WTO) in 1995. This shift aimed at improving industrial competitiveness, attracting foreign investment, and promoting exports. The current recommendation by GTRI builds on this trajectory, acknowledging that in the modern globalized economy, excessive tariffs can hinder competitiveness rather than foster it.

GTRI's core observation is that customs duties now contribute a mere 6% to India's gross tax revenue, with the average customs duty on imports standing at approximately 3.9% of the total value. This data underscores the diminishing role of tariffs as a primary fiscal tool. Instead, the focus is now on streamlining processes and optimizing tariffs to enhance India's manufacturing capabilities under initiatives like 'Make in India' and 'Atmanirbhar Bharat' (Self-Reliant India). An overhaul would involve simplifying the tariff structure, reducing redundant or complex duties, and modernizing customs procedures to reduce transaction costs and time for businesses. This directly impacts the 'Ease of Doing Business' metric, an important indicator for attracting foreign direct investment (FDI).

Key stakeholders in this proposed overhaul include the Government of India, particularly the Ministry of Finance (which administers customs duties through the Central Board of Indirect Taxes and Customs) and the Ministry of Commerce and Industry (responsible for foreign trade policy). GTRI itself, as a think tank, plays a crucial role in providing evidence-based policy recommendations. Domestic manufacturers and exporters are direct beneficiaries, as reduced trade costs and simplified procedures make their products more competitive both domestically and internationally. Importers also stand to benefit from faster clearance and lower compliance burdens. Ultimately, Indian consumers could benefit from a wider array of goods at competitive prices. Internationally, India's trade partners and the WTO would observe this development closely, as it impacts India's adherence to global trade norms and its role in global supply chains.

This initiative holds profound significance for India. Economically, it can significantly boost the manufacturing sector, create employment opportunities, and enhance India's export competitiveness. By reducing the cost of imported inputs for domestic production, it can make Indian goods more attractive globally. Politically, it aligns with the government's strategic objectives of becoming a global manufacturing hub and increasing India's share in global trade. Socially, increased economic activity and employment can lead to improved living standards. Moreover, a modern, efficient customs system is vital for national security and curbing illegal trade, ensuring legitimate trade flows seamlessly.

From a constitutional perspective, the power to levy customs duties is derived from **Article 265** of the Indian Constitution, which mandates that 'No tax shall be levied or collected except by authority of law.' The specific legal framework for customs duties is primarily enshrined in the **Customs Act, 1962**, which governs the levy and collection of customs duties, import/export procedures, and related matters. Changes to customs duty rates are typically introduced annually through the **Finance Act** during the Union Budget. Furthermore, India's **Foreign Trade Policy** (FTP), periodically announced by the Ministry of Commerce and Industry, provides the overarching framework for promoting exports and regulating imports, with tariff and non-tariff measures as key components.

The future implications of such an overhaul are substantial. A streamlined and efficient trade regime could attract greater FDI, as foreign companies seek to establish manufacturing bases in India to leverage its large domestic market and export potential. It could also facilitate India's integration into global value chains, making it a more reliable and cost-effective link. However, challenges remain, including ensuring adequate protection for sensitive domestic industries, managing potential revenue shortfalls (though customs revenue is already low), and effectively implementing complex digital customs processes across all ports. The success of this overhaul will be critical in determining India's trajectory as a global economic power and its ability to achieve its ambitious economic growth targets.