As India steps up engagement with global trade partners, the government’s overhaul of the customs tariff structure is doing more than just simplifying duties. It is also addressing long‑standing concerns about how India’s tariffs are viewed internationally.
Vivek Chaturvedi, Chairman of the Central Board of Indirect Taxes and Customs, said the process of tariffisation and rationalisation of exemptions is correcting the gap between headline tariff rates and the actual duties paid at ports. This mismatch had earlier drawn global attention and criticism, including from US President Donald Trump, who repeatedly described India as a high‑tariff economy.
Speaking to Moneycontrol, Chaturvedi said the reforms are designed to improve transparency, predictability, and certainty for trade, while continuing to support domestic manufacturing.
Trade Agreements Are Inevitable, But Policy Focus Remains on Industry Strength
Chaturvedi acknowledged that India’s move towards new trade agreements is unavoidable as the economy becomes more integrated with global markets.
“Going ahead, we are going to have trade deals. It is a fact of life,” he said, noting that such agreements naturally lead to lower import duties on finished goods entering the country.
However, he stressed that the government’s tariff strategy is not simply about lowering duties. The focus is on reducing costs for inputs so that domestic manufacturers can remain competitive. According to Chaturvedi, this approach helps Indian industry withstand external competition and build capacity to expand exports.
He also clarified that the tariff reforms are not designed around any specific free trade agreement. Each FTA will be negotiated independently, and duty concessions will depend strictly on the agreed terms. At the same time, India will continue to retain trade defence tools such as anti‑dumping measures where necessary.
Why Tariffisation Was Needed
Explaining the concept of tariffisation, Chaturvedi said the Customs Tariff Act specifies a tariff rate for every commodity in the tariff schedule. In practice, however, the effective duty paid at ports often differed because of exemption notifications.
“For instance, a product may have a tariff rate of 30 percent in the schedule, but industry representations and policy considerations may allow it to be imported at an effective rate of 10 percent through an exemption notification,” he said.
While importers paid the lower rate, the tariff schedule continued to display the higher figure. Over time, this created confusion for traders and distorted how India’s tariff regime appeared to external observers.
CBIC reviewed cases where concessional rates under exemption notifications were being used almost universally. “Where we found near‑100 percent usage of the lower rate, we consciously removed the exemption and incorporated the lower rate directly into the tariff,” Chaturvedi said.
This shift is referred to as tariffisation, where the tariff schedule itself reflects the effective rate, eliminating the need to rely on exemption notifications.
Improving Transparency and Global Optics
According to Chaturvedi, embedding effective rates directly into the tariff schedule has made the customs regime more transparent and user‑friendly.
“For trade, this brings predictability and certainty. Importers no longer need to sift through multiple notifications to understand what duty applies,” he said.
The reform also improves India’s global optics. Earlier, trading partners often focused on the headline tariff rates, which appeared high even though effective duties were lower. After tariffisation, the published tariff more accurately reflects the rate at which goods are actually imported.
This alignment has helped narrow the perception gap that previously attracted criticism from countries such as the United States, where India’s tariff structure had been repeatedly flagged as excessive.
Fewer Disputes Through Clearer Product Classification
Reducing litigation at ports has been another major objective of the tariff overhaul. Classification disputes between importers and customs officers have long been a source of friction.
“The product is the same, but interpretations differ, leading to disputes and litigation,” Chaturvedi said.
To address this, CBIC identified commodities with frequent classification disputes and created around 140 new tariff lines. These new lines allow for clearer identification of goods and are directly linked to the applicable concessional rate, reducing the scope for conflicting interpretations.
Rationalising and Reviewing Exemptions
The CBIC also carried out a comprehensive review of exemption notifications. In many cases, imports were no longer happening, exemption rates were identical to tariff rates, or the notifications had become redundant.
Such exemptions were allowed to lapse. Around 100 exemption notifications remain in force and have been placed before Parliament, but these now come with a defined time frame.
“They will be reviewed again after two years,” Chaturvedi said. At that point, each exemption will either be tariffised, continued, or withdrawn, depending on its relevance.
Stronger Advance Rulings for Trade Certainty
To further improve certainty for businesses, the advance ruling mechanism has been strengthened. Importers facing uncertainty over product classification can seek an advance ruling, which is binding on customs authorities.
The validity period of advance rulings has been extended from three years to five years. This longer window allows companies to plan imports and pricing strategies with greater confidence.
A Shift Toward Predictable Trade Policy
Taken together, tariffisation, exemption rationalisation, clearer classifications, and stronger advance rulings reflect a broader shift in India’s trade policy.
Chaturvedi said the objective is to balance global integration with domestic competitiveness, reduce disputes, and ensure that India’s tariff regime is transparent and predictable.
As India negotiates new trade agreements, this cleaner and more consistent tariff structure is expected to play a key role in shaping confidence among investors, importers, and trading partners.
Source: MoneyControl