Customs reform: How a standard rate of 5% import duty could sharpen India’s export edge

We welcome finance minister Nirmala Sitharaman’s announcement at this year’s HT Leadership Summit that her next reform would be of India’s customs duty regime. This is vital to boost competitiveness and trade diversification amid today’s tariff turmoil, with the US walling itself apart.It would be best not to limit the exercise to easing procedures and revising customs duty rates.

The reform agenda must cover the entire gamut of non-tariff barriers from quality and technical standards to inspection delays, registration riddles and more. India is a vast market.

If Indian companies can compete with the world’s best at home for a slice of the consumer spending pie, they would be able to rival foreign businesses in global markets.If the guiding principle of a customs rejig is clearly identified as making the economy more competitive, rather than shielding local industries that vie to be labelled critical or ‘infant’ in their pleas for tariff protection, it would help policymakers steer clear of special interest lobbies. A good precedent for import duty reform was set by Yashwant Sinha as finance minister in the Vajpayee government.

He cut India’s peak tariff, compressed a wide dispersal of rates into tariff bands and pushed them closer together over successive budgets to take the average effective rate down to about 7%.Since then, our tariffs have lost their anchor in any tariff band and careened across the spectrum like particles in zig-zag motion. Our rates were raised and lowered to shelter and nurture specific sectors, with industries using tariffed products as inputs lumped with a higher cost burden that hurt their export efforts.The goal now should be to set low and uniform duties that do not distort value generation