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Historically, India’s tariff structure has been complex, with multiple rates and a high duty structure, especially for agriculture. The past five years reflect largely steady rates, with peak rates remaining unchanged for most products. The duties in agriculture have been as high as 120% for certain dry fruits, while essentials (fruits and vegetables) attract up to 100% customs duty. This is meant to protect rural livelihoods largely dependent on agriculture. So, import duties on such goods may stay high.
Besides these, high tariffs in some sectors are meant to incentivise and/or protect domestic industry and promote local manufacturing. The Centre is also likely to introduce production-linked incentive schemes in some of these sectors, including toys and footwear, to incentivise local manufacturing. As such, the import duty structure is likely to remain high. According to the Global Trade Research Initiative, India’s simple average tariff fell from 31.8% in 2001 to 14.5% by 2006 and then slowly to 13.4% by 2016. A short phase of tariff escalation saw the average climb to 17% by 2023 (weighted average 12%). The simple average is now about 16%; for agri-products, it is still above 36% (weighted rate 64%).
In recent years, there has been a clear shift towards simplification and rationalisation of duty structures. Several notifications have been pruned and combined into one notification or rescinded. The tariff now mostly reflects effective duty rate, except where conditional exemptions apply, reducing the administrative burden of referring to multiple notifications. Also, the rationalisation has been undertaken from the perspective of keeping duty rates low for inputs and components and high for finished goods to promote domestic manufacturing. Duty cuts can be expected in automobile, white goods, medical devices, and semiconductor, however only on the inputs and key components that are not available in India. India’s tariff policy plays an important role in the manufacturing sector’s growth and having an average peak rate may be a deterrent at this point of time.
Other than duty rate changes, following reforms may be brought in to smooth customs processes for industry: Integration of different customs platforms into one unified system; and suitable amendments in customs law for time-bound closure of Special Valuation Branch assessments and applicability of limitation period from the date of filing customs entry.
The government is aggressive in signing new free trade agreements (FTAs) (US, European Union, Canada, etc.) as well as re-negotiating existing FTAs that have a significant trade imbalance (Association of Southeast Asian Nations). The government appears to be clear in its objective to forego limited customs revenue (currently at 6% of total revenues) to obtain market access in the major global economies. While this will lead to loss of customs revenues, there is a likelihood of substantial increase in exports and consequent foreign exchange earnings. A well negotiated FTA will contribute to India’s growth story. Benefit appears be much larger than foregone duty revenues.
The proposed integration of customs system is going to be the next big reform in years. While the government has largely digitalised processes, having different platforms has caused administrative challenges for businesses. One unified customs system is expected to smooth paperless data submission, further easing the clearance process (subject to risk management system flagging) and reduced dwell time. This is also aligned with India’s overall commitment to WTO’s trade facilitation agreement. Trade competitiveness and revenue dynamics might be reshaped in the coming years. The government has expressed its intent to overhaul the customs systems, and India is up for systemic as well as dynamic changes in customs processes and procedures.
With inputs from Karan Kakkar and Ravi Jain, respectively Partner and Director, India Investment Advisory, Grant Thornton Bharat.
This article first appeared in the Financial Express on 14 December 2025.
