Overhaul of import tariff structure, customs processes to cut trade costs, boost manufacturing, exports: GTRI

The Global Trade Research Initiative is saying that India needs to make changes to the way it handles imports and customs. This is an important time for India because it wants to become a place where lots of things are made and it wants to rely less on imports from other countries. India also wants to sell more of its products to other countries and be a bigger part of the global economy.. India will not be able to do these things unless it can make trade cheaper and easier. The Global Trade Research Initiative and people, in India think that the countrys import tariff structure and customs processes need to be changed so that India can achieve its goals like becoming a global manufacturing hub and boosting exports. The system of tariffs and customs procedures in India is really complicated. It is also very unpredictable and expensive. This is like a tax that manufacturers and exporters have to pay according to GTRI. The tariffs and customs procedures in India are a problem, for manufacturers and exporters.

The main idea behind what GTRI’s saying is really simple: trading should be easy it should be fast it should be something you can predict and it should not cost too much. When we bring things into India and it is very expensive and takes a time the people who make things in India have a hard time because they need things from other countries to do their job, like materials, machines, parts and technology. If the process to get these things through customs is complicated the people who send goods to other countries lose time and money which means Indian goods are not as good of a choice for people in other countries. So changing the way India charges fees for imported goods and the way customs works is not about making trade easier it is, about changing the whole way India makes and sells things, which is the industrial and export ecosystem of India or the GTRI way of trading.

To understand why this big change is necessary we need to look at how tariffs and customs work in India. India has a complicated system for tariffs. When we bring things into the country we do not just pay the Basic Customs Duty. We also pay the Social Welfare Surcharge, the Integrated GST and sometimes the Compensation Cess. There are also a lot of exemptions and special rates for things. The tariffs in India are very complex which is why this overhaul of the system is needed for tariffs and customs, in India. On top of this the cost of importing goods is different depending on the situation. If goods are imported under free trade agreements the rate is one way. If they are imported under economic zones the rate is another way.. If they are imported under export-oriented units the rate is different again. This is because different rules apply to free trade agreements, special economic zones and export-oriented units.

The tariff system is really complicated. This causes a lot of confusion. It also makes things very expensive for companies to follow the rules. Tariffs are supposed to help the companies in our country or bring in money. They have become very hard to understand. Companies have to spend a lot of time and money to figure out the tariffs. This is a problem because it can lead to arguments between the people who import goods and the customs people. The tariff system is like a puzzle that companies have to solve and it costs them a lot of money to do it. Tariffs are a problem, for importers and customs authorities because they can not always agree on how to classify things.

The Georgia Tech Research Institute says that all these complicated rules stop people from investing in India and make it harder for the country to compete with countries when it comes to manufacturing. Big companies that make things around the world like to set up their factories in places where it is easy to get the parts they need and where they know exactly what to expect. Countries like Vietnam, Thailand and China have made it simple to pay taxes on imported goods. Have made the process of getting things through customs really fast which means they can make things quickly and cheaply. On the hand India seems like a risky and expensive place for big companies from other countries to do business, which is a problem for Indias manufacturing industry and this is a big issue, for Indias manufacturing competitiveness.

Indias tariff rates change a lot. This is a problem. The government changes import duties times. Sometimes they change these duties times in one year. They do this when they announce the budget or make policy changes. Governments use tariffs to help the companies in their country or to stop people from importing things.. When tariffs change all the time it is hard for businesses to know what to do. Companies that want to invest in something for a time need to know what is going to happen. If tariff rates change all of a sudden it can be very bad for businesses. Indias tariff rates changing suddenly can make business plans fail mess up the supply chains. Make costs go up when companies are not expecting it. Indias tariff rates are an issue, for companies because they need stability to make good plans.

For example a manufacturer that brings in components from other countries will make a plan for how much to charge for these components and where to get them based on a certain tax rate. If the government all of a sudden increases the tax, on imported goods the cost of doing business changes away. This does not affect how much money the manufacturer makes but it also hurts Indias reputation as a good place to do business because it is no longer seen as a stable place to work with electronic components and India.

GTRI thinks that it is really important to have a tariff policy that makes sense and does not change suddenly. The tariffs should be:

Simple

Low

Uniform

Predictable

India should not have many different rates for thousands of products. It would be better if India had rates with not many exceptions. Many countries that do a lot of trade are already doing this. It works for them. They have rates and it is simpler. India can learn from these countries like successful trading nations and do the same thing with fewer slabs and minimal exemptions, for the products.

High tariffs are supposed to help the companies in our country.. The people at GTRI say that this does not work very well when so many countries are trading with each other. A lot of the things we make depend on parts and materials that we import from countries. When we put tariffs on these imports it costs more to make things. This means the things we make are more expensive and people do not want to buy them much either in our own country or in other countries. High tariffs, like these can really hurt the industry, which is what tariffs are supposed to protect. The domestic industry and high tariffs are closely. High tariffs can make it harder for the domestic industry to succeed.

For instance:

The people who make cars need to get electronic systems and precision parts, from other countries to build the cars. They use these imported systems and precision parts to make the cars work properly. The automobile manufacturing process really depends on these imported systems and precision parts.

The thing, about making electronics is that it relies on semiconductors and other parts that come from countries. Electronics manufacturing really needs these imported semiconductors and components to work properly.

The textile and garment exports business relies on imported fabrics, dyes and machinery to make the products. The textile and garment exports industry needs these imported things to function properly. Without imported fabrics, dyes and machinery the textile and garment exports would not be able to make their products.

When India has import duties on these things Indian manufacturers do not have the upper hand on costs. This makes it tough for Indian manufacturers to compete with countries that let people bring in raw materials and components without paying much in duties or without paying any duties at all. Indian manufacturers are at a disadvantage because of these import duties, on raw materials and components.

So the tariffs that are supposed to help the industry actually end up hurting the industry. This is what happens when the tariffs that are meant to protect the industry do not work as planned and the industry gets hurt instead. The tariffs that are meant to protect the industry are not doing what they are supposed to do, which is to help the industry and that is why the industry is getting hurt by the tariffs.

The people at GTRI think that India needs to change the way it thinks. India should not just try to protect the people who make things in India from countries. Instead India should help these people make things that can compete with things made in countries. For this to happen the people who make things in India need to be able to get the things they need from countries easily and at a low cost. This will help India compete with countries, like the United States and China. GTRI says that India needs to have a competitiveness mindset, not a protection mindset.

Customs processes are a part of the reform plan. If we reduce tariffs it will still be hard to trade because the costs will be high. This is because we need to make customs procedures easier and use computers more. Now when we want to clear customs in India we have to do things like:

Extensive documentation

Physical inspections

Classification disputes

Valuation challenges

Delays in refund of duties and GST

India has done a job with digital things like ICEGATE and the faceless assessment system.. When it comes to actually doing things on the ground it is not the same everywhere. There are still delays at ports and airports. These delays make it more expensive to move things around. When goods sit at the port for a day it costs more money for storage and other fees. This also means that people miss out on chances to make money, which is a big problem for India and the people who use these ports. India needs to work on making things better, at the ports and airports so that goods can move quickly and people can save money.

The World Banks Logistics Performance Index shows that when customs clearance is faster a country is more competitive when it comes to exporting things. If a country can clear cargo in a few hours instead of taking days it is more likely to get investment from manufacturers. This is because faster customs clearance is directly linked to export competitiveness of the World Banks Logistics Performance Index. Countries with customs clearance, like the World Banks Logistics Performance Index attract more manufacturing investment.

The Georgia Tech Research Institute argues that India must aim for:

Risk-based inspection systems

Minimal human intervention

End-to-end digital processing

Time-bound clearance guarantees

Customs should be helping people do trade of making it hard, for them. The customs people should make things easy for trade to happen not stop it from happening. Customs should be there to help trade not be a barrier to trade.

The classification disputes problem is an issue. When products are imported they get a code under the Harmonised System. This code decides how much duty has to be paid.. Here is the thing, products that are similar can have different codes and that means different duty rates. This is where the problem starts, importers and customs officials can have opinions about the classification of products, like these. The Harmonised System is supposed to make things clear. It does not always work that way classification disputes are still a major obstacle.

These kinds of disagreements can cause a lot of problems. They lead to things like

* fights, between people

* problems that’re very hard to solve

Such disputes can also make people very unhappy and they can go on for a very long time. Such disputes are an issue because they can affect many people.

Delays

Litigation

Additional costs

Uncertainty

For medium enterprises this is really bad because they do not have the money to pay lawyers to fight long cases. The people at GTRI think that if we make tariff rates simpler and more equal across categories then we will have fewer problems, with classification of the small and medium enterprises.

People often worry about how trade costs affect exports and thiss something that GTRI is concerned about. A lot of people think that tariffs only affect things that are imported. That is not true. Exporters use things that are imported to make their products. When import tariffs are high it is like a tax on exports too. This is called export taxation through import duties. It is a problem for exports. The impact of trade costs, on exports is a big deal and exports are affected by trade costs in ways.

India has schemes like duty drawback and input tax credits for people who export things.. These schemes can be very slow and hard to understand. When refunds are delayed it affects the people who export things the small and medium businesses. They have a time managing their money. On the hand countries like China and Vietnam make it easier for people who export things. They can import the things they need without paying duty through warehouses and trade systems. This helps the exporters in China and Vietnam and India should do something to help the exporters, in India like the small and medium businesses, who are also known as MSMEs.

The Georgia Tech Research Institute suggests that India must:

Expand duty-free import schemes for exporters

Simplify refund mechanisms

Ensure fast processing of claims

If we do not have this Indian exports will be too costly. People will not want to buy them because they are not competitive, with other countries. Indian exports need this to be able to sell in other countries.

The thing that is really important for India is that it wants to make things at home which is what the “Make in India” and “Atmanirbhar Bharat” plans are all about. Being self-reliant does not mean that India has to be alone. Making things in a way means that India has to work with other countries to get the things it needs. No country can make everything it needs at a price that people can afford. Even China, which people think can make everything it needs actually buys a lot of parts and materials from countries. India is doing the “Make in India” and “Atmanirbhar Bharat” initiatives to help the country. The “Make in India” and “Atmanirbhar Bharat” initiatives are very important, for Indias future.

So India needs to be a part of the world trade scene if it wants to be a big player in making things. The thing is India should buy things from countries in a smart way not just sell things to them. GTRI says that getting things from countries quickly and easily is just as important as selling Indian things to other countries. India has to do both to be good, at making things.

So the thing is Indias current system has some problems. There are four things that are not working well and that is why it needs to be changed. The need for a change in Indias system comes from these four major weaknesses, in Indias current system:

Excessive complexity in tariff structure

Tariffs that are really high and not the same can make it more expensive for companies to buy the things they need to do business. These high and uneven tariffs increase the costs of the things that companies use to make their products.

Unpredictability due to frequent policy changes

Customs processes can be really slow. This makes the cost of getting things from one place to another a lot higher. The customs processes are not very good, at doing their job. This is a big problem. It increases the cost of logistics. Inefficient customs processes are an issue because they raise logistics costs.

These problems all come together to make it really expensive to trade with countries. This makes it hard for companies to make things and sell them to countries. The problems with trade are bad for manufacturing. They are also bad, for exports.