Don’t Miss the Window to Overhaul Tariffs and Customs to Boost Trade

India needs a sweeping overhaul of its import tariff structure and customs administration to cut trade costs, strengthen manufacturing competitiveness and revive export growth.

A Blueprint for Modernizing India’s Import Tariffs and Customs Regime, a report by Global Trade Research Initiative, of which the author is founder, outlines 23 reforms spanning tariff policy, customs procedures, export incentives and manpower deployment.

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

The study comes as India’s merchandise trade crosses $1.16 trillion and nearly 29% 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 December commitment to overhaul customs procedures has created a rare policy opening, but piecemeal changes will not be enough.

Not a Revenue Tool
At the core of the recommendations is a call to rationalise India’s import tariffs, which the GTRI report argues have lost relevance as a revenue instrument while continuing to distort production decisions. Customs duties now account for just 6% of gross tax revenue and average only 3.9% of the value of imports.

The distribution of tariff revenue is highly skewed: nearly 90% of import value is concentrated in fewer than 10% of tariff lines, while the bottom 60% of tariff lines generate under 3% of customs revenue. Maintaining a complex tariff schedule for such limited fiscal return imposes high administrative and compliance costs, the report argues.

GTRI recommends moving toward zero duty on most industrial raw materials and key intermediates, while adopting a low, standard duty—around 5%—on finished industrial goods over the next three years. It also calls 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% duty on alcohol, should be rationalised, the report adds, 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. Importers face a cumulative burden of cesses, surcharges and trade remedies, making the effective tariff far more complex than official rate schedules suggest.

Labyrinth of Rules

Beyond tariffs, the labyrinthine system of customs notifications, many of which amend decades-old rules and are not self-contained, should be simplified. Traders must navigate hundreds of overlapping notifications to determine applicable duties, often without clear HS-code references.

The government should issue self-contained notifications that clearly state their full impact, and to publish all applicable import duties in a single, unified online schedule. Also, there is a need for greater transparency around the renewal of time-bound duty exemptions, including brief public explanations of why they remain necessary.

To reduce disputes, the GTRI report recommends aligning India’s duty drawback system with the standard eight-digit HS codes already used for imports and exports. At present, exporters must use a separate coding system for refunds, increasing errors and delays.

On the operational side, the report focuses heavily on restoring trust in risk-based clearance. It recommends making Direct Port Delivery the default for shipments cleared by the Risk Management System, rather than diverting cargo to container freight stations, which adds cost and delays.

Risk-based clearance decisions, the report says, should be binding in normal cases, with any overrides recorded in writing and made auditable. It also proposes mandatory CCTV recording of inspections, greater reliance on structured data instead of document uploads, and extending risk management to all border agencies, including plant quarantine and food safety authorities.

Approval norms for inland container depots and freight stations should also be liberalised to support modern, niche supply chains, rather than forcing one-size-fits-all logistics infrastructure, the report argues.

Export Bottlenecks

Several recommendations address long-standing export stress points. Among them: fixing mismatches in Export General Manifests that block incentives such as duty drawback and the Remission of Duties and Taxes on Exported Products scheme; real-time integration of customs and trade-policy IT systems; and allowing exporters to aggregate small RoDTEP credits to avoid distress sales.

The report also calls for extending the validity period for claiming RoDTEP benefits, noting that exporters often lose incentives due to technical delays beyond their control.

Using Manpower Strategically

Finally, GTRI urges a rethink of customs manpower deployment. With facilitation rates reaching 85% in 2024, manpower-intensive frontline checks are no longer the best use of resources, the report says. Staff should be redeployed toward audits, origin verification and inland clearance points.

In a more novel proposal, it also suggests posting customs officers overseas at Indian embassies and major ports to help exporters resolve non-tariff barriers and learn global best practices.

None of the reforms will succeed in isolation. Implemented together, they could lower trade costs, attract investment and position customs as a facilitator rather than a bottleneck. But the policy window, they warn, is narrow.

“Customs can no longer be treated as a back-end administrative function,” the report concludes. “It must become a strategic instrument of growth, competitiveness and global integration.”

The GTRI report was prepared by Ajay Srivastava and Satish Reddy, a former Indian Revenue Service officer of customs and indirect taxes.