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Informist, Thursday, Feb. 27, 2025

 

--Source: Govt expedited tariff rationalisation, aim to cut avg duty to 8%

--Source: Govt has set internal aim to cut avg customs duty to 8% in 1 yr

--Source: Govt plans to cut customs duty on all low-import tariff lines

--Source: Govt may consider duty cuts for PV import in future; no talks yet

 

By Krity Ambey

 

NEW DELHI – A little over a month before reciprocal tariffs by the US kick in, India has expedited its tariff rationalisation exercise, with an internal target to bring down the country's average customs duty rate to 8% from the current 10.66% in the next one year, a government official said.

 

"There are about 2,000 tariff lines where duty is over 10%. Out of these, we will identify the tariff lines where import is miniscule, and reduce duty there," the official told Informist. However, the exercise will be limited to industrial goods only, considering the sensitivity of India's farm sector, the official added. 

 

Earlier this month, the US government announced that it will impose reciprocal tariffs on all nations, including India, based on the duty levied on the US goods. The first set of reciprocal tariffs are expected to be rolled out in April.

 

While the government official insisted that the tariff rationalisation has not been triggered by the shift in US' trade policy, the timing of speeding up the exercise is uncanny. According to the official, the duty rationalisation exercise started in July, much before US President Donald Trump's Republican Party had come to power. But the exercise seems to have gained momentum recently after Trump called India a "tariff king".

 

The US is India's top export destination, with its share in India's total merchandise exports at about 17%. In 2023-24 (Apr-Mar), India exported goods worth $77.52 billion to the US and had a trade surplus of $35.32 billion.

 

The government's recent vigour in lowering India's average tariff rate is apparent from its latest decision to slash customs duty on high-end motorcycles, including the US-based Harley-Davidson. This came after Trump in December specifically mentioned the high duty on Harley-Davidson bikes, while threatening to impose reciprocal tariffs on India for the first time. 

 

The government recently cut duty on bourbon whiskey to 50% and on other alcohols to 100% from the peak of 150%--India's highest customs duty rate. India imported $23.09 million of bourbon whiskey from the US in FY24, up 42% on year.

 

The next item that attracts a high basic customs duty of 125% are passenger vehicles. The government may consider lowering the duty on passenger vehicle imports as well in the future, however, no discussions regarding this have taken place so far, the official said. 

 

The government had announced a comprehensive review of the customs rate structure in the full Budget for FY25 presented in July. Since then, it has brought down the average duty rate to 10.66% from 11.65%. It has also lowered the number of customs duty rates to eight, including the zero rate, from 22, over the last eight months. 

 

Customs duty rationalisation has been a long-standing demand of the Indian industry. In fact, industry associations, like the Confederation of Indian Industry and the Federation of Indian Export Organisations, have asked the government to address their concern in the past few years, way before the FY25 Budget.

 

In the Budget for FY26, the government has estimated receipts from customs duty at INR 2.40 trillion. Customs duty usually accounts for about 7% of the government's total revenue receipts. 

 

But the government would not have to compromise on its revenue due to the tariff rationalisation as it plans to cut basic customs duty on tariff lines where imports are very low, the official said. "We are anyway not getting any significant share of revenue from there," the official said.  End

 

US$1 = INR 87.20

 

Edited by Tanima Banerjee

 

 

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