India's Trade Reform Blueprint: Path to Economic Growth
A comprehensive analysis by the Global Trade Research Initiative (GTRI) reveals that India stands at a critical juncture requiring substantial reforms to its import tariff structure and customs administration. With merchandise trade crossing $1.16 trillion and representing nearly 29% of GDP flowing through customs clearances, even modest inefficiencies now impose economy-wide costs.
The Economic Case for Reform
The research demonstrates that India's current tariff system has evolved beyond its original purpose. Customs duties now contribute merely 6% of gross tax revenue and average only 3.9% of import values, indicating that tariffs have transitioned from revenue generation tools to trade policy instruments.
GTRI's analysis reveals a striking concentration pattern: nearly 90% of import value is concentrated in fewer than 10% of tariff lines, while the bottom 60% of tariff categories generate under 3% of customs revenue. This distribution highlights the inefficiency of maintaining complex schedules for limited fiscal returns.
Strategic Recommendations for Competitiveness
The think tank advocates for a phased approach toward zero duties on industrial raw materials and key intermediates, coupled with a standardized 5% duty on finished industrial goods over three years. This framework addresses the critical issue of inverted duty structures that quietly erode domestic manufacturing competitiveness.
Key reform priorities include:
- Elimination of extreme tariffs, such as the 150% duty on alcohol, which encourage evasion while delivering negligible fiscal benefits
- Comprehensive tariff calculations based on total import duties, including cesses, surcharges, and trade remedies
- Streamlined customs notifications with clear HS-code references
- Unified online duty schedules for enhanced transparency
Administrative Modernization Framework
Beyond tariff restructuring, GTRI emphasizes the need for customs administration reform. The current labyrinthine system of notifications, many amending decades-old rules, forces traders to navigate hundreds of overlapping regulations without clear guidance.
The report recommends redeploying customs officers toward audits, origin verification, and inland clearance points. Additionally, posting customs officers overseas at Indian embassies and major ports could help exporters resolve non-tariff barriers while facilitating knowledge transfer of global best practices.
Supply Chain Innovation
To support modern supply chains, the analysis suggests liberalizing approval norms for inland container depots and freight stations. This approach moves away from one-size-fits-all logistics infrastructure toward specialized, niche-oriented solutions.
The alignment of India's duty drawback system with standard eight-digit HS codes used for imports and exports represents another critical efficiency measure. Currently, exporters navigate separate coding systems for refunds, increasing errors and processing delays.
Global Context and Timing
These recommendations gain particular relevance as global companies reassess sourcing locations amid geopolitical fragmentation. India's ability to position itself as a competitive manufacturing hub depends significantly on reducing trade costs and enhancing export competitiveness.
The report, co-authored by GTRI founder Ajay Srivastava and former IRS Customs officer Satish Reddy, provides a comprehensive blueprint for transforming India's trade infrastructure to meet 21st-century economic demands.