Trade policy rethink: GTRI calls for tariff overhaul; simpler customs to cut costs and lift exports - The Times of India

The Global Trade Research Initiative (GTRI) has called for a significant overhaul of India's tariff structure and a simplification of customs procedures. This move aims to reduce import costs for manufacturers, enhance the competitiveness of Indian exports, and potentially boost exports by an estimated $100 billion.

According to the GTRI, India's current customs duty structure is complex and often counterproductive. A key issue highlighted is the high customs duty imposed on many raw materials and intermediate goods across various sectors, including textiles, chemicals, plastics, paper, medical devices, and electronics. This makes Indian products more expensive to produce compared to international competitors. For example, India's average Most Favored Nation (MFN) tariff stood at 18.3% in 2022, significantly higher than countries like Indonesia (9.3%), Vietnam (6.9%), China (6.3%), and the average of developed nations (2.2%). The report also points to a complex system with over 11,000 tariff lines, contributing to inefficiencies.

A critical problem identified is the "inverted duty structure," where raw materials face higher import duties than their corresponding finished products. Specific examples include:

• Fabric (raw material) attracting a 10% duty, while garments (finished product) attract a 5% duty.
• Polyester chips (raw material) attracting a 5% duty, polyester fiber (intermediate) attracting a 5.5% duty, and polyester spun yarn (finished product) attracting a 5% duty.

To address these issues, the GTRI recommends reducing customs duty on raw materials and intermediates to a range of 0-2.5%, and on finished products to 5-7.5%. Furthermore, they propose streamlining the duty structure to a maximum of 3-4 duty slabs. These reforms, coupled with simplified customs procedures, reduced documentation, and improved infrastructure, are expected to benefit Indian manufacturers who rely on imported inputs and make their final products more competitive in global markets. Importers of raw materials, intermediates, and finished goods into India, as well as Indian manufacturers and exporters, would be directly affected by such changes.

For importers, customs brokers, and trade compliance officers, this report signals a potential shift in India's trade policy. While these are recommendations and not yet enacted policy, it is crucial to stay informed about ongoing discussions and any forthcoming policy announcements from the government. Importers should monitor developments closely, assess how potential tariff reductions on raw materials or changes to duty slabs might impact their sourcing strategies, cost structures, and overall compliance requirements. Preparing to adapt to a potentially simpler, more competitive tariff environment could offer significant advantages.