Editor’s Note
A new report outlines how reforming India’s import tariff and customs system could shift its focus from control to growth facilitation, directly supporting the nation’s manufacturing and supply chain ambitions.
A report titled ‘A Blueprint for Modernizing India’s Import Tariff and Customs System’ recommends reforms related to tariff policy, customs procedures, export incentives, and human resource deployment. According to the report, implementing these measures could transform customs from a control-based system into an institution that enables growth, aligning with India’s manufacturing and supply chain strategy.
This study comes at a time when India’s merchandise trade has surpassed $1.16 trillion, and nearly 29 percent of the country’s GDP falls under the scope of customs clearance. GTRI warned that in the current situation, even minor inefficiencies impact the entire economy, increase input costs, cause shipment delays, and weaken export competitiveness, especially when global companies are seeking new supply locations amid geopolitical shifts.
The report states that signals from Finance Minister Nirmala Sitharaman in December regarding improvements in customs procedures have created a significant opportunity at the policy level, but piecemeal changes will not be sufficient.
GTRI has emphasized the need to rationalize India’s import tariff structure.
According to the report, customs duty is no longer an effective tool for revenue generation, yet it continues to influence production decisions.
Customs duty constitutes only 6 percent of total tax revenue and is equivalent to an average of 3.9 percent of import value.
The report also highlighted that the distribution of tariff revenue is highly imbalanced.
Approximately 90 percent of total import value comes from just 10 percent of tariff lines, while the bottom 60 percent of tariff lines contribute less than 3 percent of customs revenue.
Despite this, maintaining a complex tariff structure increases administrative and compliance costs.
GTRI has recommended that:
Zero duty be applied to most industrial raw materials and key intermediates.
A uniform, low duty of around 5 percent be adopted on finished industrial products over the next three years.
The inverted duty structure be eliminated, where tax on inputs is higher than on finished products, harming domestic manufacturing.
Excessive duties of up to 150 percent on products like alcohol be rationalized, as such duties encourage tax evasion and offer limited revenue benefits.
GTRI has also raised questions about the complex system of customs notifications.
According to the report, many notifications amend rules that are decades old and are not self-contained.
Traders have to sift through hundreds of overlapping notifications to understand applicable duties, which often lack clear HS code references.
The think-tank has urged the government to make all notifications self-contained and publish all import duties in a unified online schedule to increase transparency and ease compliance.