The Global Trade Research Initiative (GTRI) has recommended strategic adjustments to India’s import duty structure in the upcoming FY26 Budget to foster domestic manufacturing and streamline tariffs. With customs duties contributing only 6.4% to the gross tax revenue—compared to corporate tax (26.8%), income tax (29.7%), and GST (27.8%)—GTRI suggests using the budget to encourage economic growth and enhance trade competitiveness.
Simplified Tariff Structure
GTRI advocates reducing India’s average tariff from the current 17.1% to 10%, a move that could minimize revenue loss and mitigate international criticism, particularly from developed nations like the US. Presently, 85% of tariff revenue comes from just 10% of tariff lines, while 60% of tariff lines contribute less than 3% of revenue.
The think tank recommends simplifying the tariff framework by:
- Reducing slabs from over 40 to five.
- Capping maximum tariffs at 50%.
- Ensuring raw materials have lower tariffs than finished goods.
An inter-ministerial review process, involving all relevant departments, could align tariff policies with national economic objectives, GTRI suggested.
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Addressing Unfair Practices
The report also called for ending exemptions under the Manufacturing and Other Operations in Warehouse Regulations (MOOWR), which currently allow duty-free imports of machinery for domestic sales. This, GTRI argues, puts local capital goods manufacturers at a disadvantage, as they must pay GST on machinery sold within India. Companies outside MOOWR also bear the full burden of import duties and IGST when purchasing machinery for domestic use.
Customs Reform Proposals
To improve trade logistics and reduce operational costs, GTRI suggested reforms in customs cargo service provider regulations. Key recommendations include:
- Shifting the financial burden of customs officers’ costs from service providers to the government.
- Rescinding outdated customs notifications and issuing clear, self-contained duty sheets to simplify processes and enhance transparency.
The report emphasized the need for comprehensive, updated documentation to eliminate confusion caused by overlapping and outdated notifications. “A single, clear duty sheet will make customs operations more business-friendly,” it said.
Moving Toward Competitiveness
By refining tariff structures and customs policies, India can reduce import reliance, promote exports, and strengthen its local manufacturing ecosystem. These reforms, GTRI suggests, would align with the country’s long-term economic goals while addressing immediate challenges in trade and logistics.
