India scaled up customs duty on 1/3 of tariff lines in 6 years

In six years, the National Democratic Alliance government has increased basic customs duty (BCD) on nearly one-third of all tariff lines to support domestic manufacturing, Union budget documents for FY22 showed.

A tariff line is a specific duty rate assigned to one or more items within a product group. The increase in BCD covers 4,000 tariff lines, the budget papers said, conceding that India has measures to protect the interests of local manufacturers from the global market.

India’s customs duty structure has been guided by “the conscious policy to incentivize domestic value addition”, which entails imposition of lower duty on raw materials and providing “reasonable tariff support” to goods made in India, the document said.

In recent years, BCD has been raised “on such items being manufactured in India or which domestic industry aspires to manufacture”, it said.

A fallout of increasing customs duty is the surge in imports from India’s free trade partner countries, which prompted the government to take several measures last year to ensure that third-party goods do not make their way into the Indian market to take advantage of New Delhi’s free trade agreements. As such, the rules of origin, based on which exporters from free-trade partner countries claim tax benefits, have been tightened.

In the Union budget, the government removed customs duty exemptions on 80 items, saying they were outdated and promised to review 400 other duty exemptions. It also raised duty on a host of items from farm produce to leather, gems and jewellery, auto parts, certain capital goods.

While policymakers said the tariff action is temporary, experts are concerned that a less dynamic global trade would hurt recovery prospects.