Customs: We need five specific reform measures to boost India's trade in the face of external headwinds

These moves undermine the basic principles of cooperative global commerce, leaving countries like India to prioritize securing their national interests. Against this backdrop, the Union finance minister’s announcement of a comprehensive customs overhaul comes at a critical moment.

These reforms will offer India an opportunity not merely to shield itself from trade conflicts, but capture a larger share of global exports and integrate more deeply into global supply chains. Success, however, will require a fundamental restructuring of how goods flow across India’s borders.

The reforms must recognize and build upon India’s expanding web of trade agreements with Japan, Korea, Asean, Australia, the UAE, European Free Trade Association and the UK, even as negotiations with the EU are underway.

But signing agreements is only the first crucial step. The real challenge lies in making these partnerships work for Indian exporters through streamlined customs procedures and reduced friction at the border.

At the heart of meaningful reform lies a dual focus on tariffs and the often-overlooked non-tariff barriers that quietly strangle trade. Our exporters struggle to comply with complex regulations in destination markets, while import processes at home remain cumbersome.

The path forward requires simplifying India’s tariff structure into three tiers: the lowest rates for raw materials, moderate rates for intermediate goods and higher rates for finished products.

This rationalization should reduce our applied weighted average tariff rates from current levels of more than 5% to those comparable with competing economies: 1-2% for Vietnam, China and Indonesia.

The inverted duty structure that penalizes domestic manufacturers when import duties on finished goods are lower than those on inputs must be eliminated, such as through the availability of streamlined Import of Goods at Concessional Rate of Duty Rules.

Capital goods present a particular case for tariff reform. Various export promotion schemes already permit duty-free imports of machinery. The Manufacturing and Other Operations in Bonded Warehouse (MOOWR) scheme extends this benefit even to domestic production.

This practice essentially reveals a policy of openness toward duty-free capital goods’ imports, subject to checks and balances under the scheme.

Direct tariff reduction on capital goods for select sectors, from the current levels of 7.5% for most goods to 0% would be more straightforward and better serve the goal of encouraging investment while protecting domestic manufacturers through careful sectoral targeting.

Beyond tariffs, India’s reforms must tackle the practical barriers that inflate costs and create uncertainty for traders. India has made impressive strides in reducing cargo release times and improving logistics.

Yet, there is significant room for improvement. Five specific interventions could transform the trading environment:

The first challenge traders face is knowing what regulations apply. Goods routinely arrive at ports only to be detained because importers lack clear information about compliance requirements, particularly those arising from domestic regulations including quality control orders (QCOs).

This defeats the purpose of processing shipments before arrival, a cornerstone of modern trade facilitation.

The solution already exists in the Customs Act’s Section 11(3); introduced in 2018, it authorizes the creation of a single repository for all regulatory requirements regardless of which ministry issues them. This provision must be implemented.

Even with simplified tariffs and centralized information, traders will encounter ambiguities, particularly around rules-of-origin under India’s growing list of free trade agreements.

Expanding the scope of Customs Advance Rulings under Section 28-H(2) of the Customs Act would allow businesses to seek binding clarification on how domestic regulations will apply to them at the border.

This will require establishing mechanisms for coordination between the customs advance rulings authority and the relevant ministries to provide traders certainty.

Modern global supply chains increasingly involve transactions between related corporate entities.

The current system of advance scrutiny by the Special Valuation Branch to determine proper duty values for such transactions often sees cases drag on for years without resolution, creating planning nightmares for businesses.

This advance review process should be replaced with post-clearance audits that verify compliance after goods have moved, incorporating statutory time limits to prevent indefinite uncertainty.

Trade facilitation should also embrace a more sophisticated, entity-based approach centred on the globally recognized Authorized Economic Operator programme, which certifies reliable traders who meet stringent criteria. These certified operators deserve greater trust from customs officials in the field.

The benefits should expand to include mutual recognition under free trade agreements, self-licensing for export permits (including sensitive technologies) and exemption from routine examinations at ports. Trust, once earned through rigorous vetting, should translate to tangible advantages.

Finally, while facilitating legitimate trade, customs must maintain robust compliance mechanisms. The current risk management system needs refinement to reduce both false positives that delay compliant shipments and false negatives that miss genuine violations.

This requires a more nuanced categorization of non-compliance based on its nature, likely intent and economic impact. Different categories of violations should trigger different responses, from education and mediation to enforcement action, with clear processes for dispute resolution.

Transparency in how these determinations are made will increase efficiency and build confidence in the system’s fairness.

As global trade fragments into competing blocs and bilateral deals, India’s customs system must evolve into a strategic policy instrument. The proposed reforms represent an opportunity to position India as an agile competitor ready to seize opportunities in a reordered global economy.

These changes must be implemented with the urgency and ambition that this moment demands.

The authors are, respectively, head and senior fellow, Ashoka University Isaac Centre for Public Policy. Shubhangi Sahai contributed to the article. These are the authors’ personal views.