Major Customs reforms on the anvil |
The government may undertake a major exercise to reduce the basic customs duty or import tariff on a large number of goods, especially critical raw materials and intermediate goods, in the Budget for FY27. This will be a fully autonomous initiative to lower the tariff barriers for the benefit of domestic value creation in assorted supply chains, despite the backdrop of Trump tariffs and a flurry of free trade agreements (FTAs) being negotiated.
“A sharper focus on correcting tariff structures will help encourage local value-addition in both manufacturing and services with manufacturing linkages, attract fresh investments, and cushion the impact of a swelling import bill,” said a source.
In parallel, the Customs procedures would be eased further, with greater digitisation, faceless processing and integration of operational parameters of large ports.
“India must progressively reduce its weighted average customs duty from about 14% now to 2% to align with the world’s top economies. A period of rupee depreciation, when import values are higher and the customs base expands, is the most opportune time to do this,” said noted tax expert and former senior IMF economist Arbind Modi. Both the revenue risks and inflation pressures are contained at this juncture, he noted.
Last week Finance Minister Nirmala Sitharaman said a complete overhaul of the customs duty structures would be the next big reform agenda and hinted that the proposed reforms will be comprehensive and entail duty rationalisation.
The customs duty cuts are also much easier now as the plans to conclude FTAs with a number of large economies/customs unions are anyway going to result in a shrinking of the common Most Favoured Nation (MFN) route. In the next 12 to 18 months, more than 80% of India’s trade will be conducted under preferential duties as FTA with major partners become operational,........