India's Trade Needs Tariff Overhaul, Customs Reform: GTRI Report

The report, titled ;A Blueprint for Modernizing India's Import Tariffs and Customs Regime', outlined the need for reforms, spanning tariff policy, customs procedures, export incentives and manpower deployment.

Taken together, the measures would transform customs from a control-oriented system into what the authors described as a growth-enabling institution aligned with India's broader manufacturing and supply-chain ambitions.

The study comes as India's merchandise trade crosses USD 1.16 trillion and nearly 29 per cent of gross domestic product flows through customs clearances.

In that context, 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.

Finance Minister Nirmala Sitharaman's commitment in December to overhaul customs procedures has created a rare policy opening, the GTRI report said, but warned that piecemeal changes will not be enough.

At the core of the recommendations is a call to rationalise India's import tariffs, which the report argued 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, according to GTRI.

The distribution of tariff revenue is highly skewed, it argued. Nearly 90 per cent of import value is concentrated in fewer than 10 per cent of tariff lines, 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 GTRI report argued.

GTRI recommended imposing zero duty on most industrial raw materials and key intermediates, while adopting a low, standard duty (around 5 per cent), on finished industrial goods over the next three years. It also called 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, the report added, 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, it suggested. Importers face a cumulative burden of cesses, surcharges and trade remedies, making the effective tariff far more complex than official rate schedules suggest.

Beyond tariffs, the report takes aim at what it describes as a labyrinthine system of customs notifications, many of which amend decades-old rules and are not self-contained. Traders must navigate hundreds of overlapping notifications to determine applicable duties, often without clear HS-code references.

GTRI 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.

- ANI