India needs to simplify its customs duty framework by reducing the actual number of duty slabs, rather than merely adjusting basic customs duty (BCD) rates, to genuinely improve ease of doing business. This recommendation has been made by the Global Trade Research Initiative (GTRI) in its pre-Budget 2026-27 submissions.
Why Current Customs Duty Reforms Fall Short
According to GTRI, while the previous Union Budget reduced the number of ad valorem BCD rate slabs to eight, the reform had limited real-world impact. The reduction did not cover the wide array of specific duties, mixed duties, and conditional tariffs, which together create hundreds of effective duty slabs in practice.
The think tank also noted that a portion of the BCD was shifted to the Agriculture Infrastructure and Development Cess (AIDC). Although this made the tariff structure appear simpler on paper, the overall import duty burden remained unchanged. As a result, the stated objective of tariff simplification was effectively diluted.
Hidden Complexity in India’s Import Duties
Importers are required to pay not just BCD, but also AIDC, Social Welfare Surcharge, and health-related cesses. When combined, these levies make India’s tariff regime far more complex than headline rates suggest.
GTRI has therefore argued that tariff rationalisation should focus on total import duty, rather than treating BCD in isolation. Consolidating all duties into a small number of transparent slabs would make the system more predictable and business friendly.
Customs Reform Is Critical to Manufacturing and Exports
As India seeks to deepen manufacturing, diversify exports, and integrate more closely into global supply chains amid rising protectionism and trade fragmentation, an outdated tariff structure poses significant risks. GTRI cautioned that a process-heavy customs system and complex duty framework could undermine these strategic objectives.
Customs reforms, both in tariffs and procedures, are central to India’s economic architecture. Nearly 29% of India’s GDP flows through customs, and total merchandise trade exceeds USD 1.16 trillion annually. In such a high-volume environment, even minor inefficiencies can have economy-wide consequences, raising input costs, delaying shipments, weakening export competitiveness, and discouraging investment.
Key Recommendations from GTRI
GTRI has put forward several specific reform measures, including:
- Reducing the actual number of customs duty slabs, rather than just BCD rate categories
- Publishing all import duties in a single, clear schedule
- Using simple and unambiguous language in customs notifications
- Creating a searchable online database of customs tribunal decisions
- Conducting a zero-base audit of customs rules and procedures
- Undertaking a product-by-product review of customs tariffs to align trade policy with manufacturing and export goals
Tariffs No Longer a Major Revenue Source
GTRI also highlighted that customs duties have steadily lost relevance as a revenue instrument. Today, customs duty accounts for only around 6% of India’s gross tax revenue and represents just 3.9% of the total value of imports. This, the think tank argued, strengthens the case for prioritising trade facilitation and competitiveness over revenue protection.
Conclusion
For customs reforms to deliver meaningful outcomes, India must move beyond cosmetic changes and address the real complexity of its tariff structure. Simplifying duty slabs, improving transparency, and modernising customs procedures are essential steps to support manufacturing growth, boost exports, and enhance India’s position in global trade.
This article is based on views expressed by the Global Trade Research Initiative (GTRI). Source: The Economic Times.