Tariffs in India: Trade Barriers, Policy Shifts, and Global Impacts

Tax on imports is an example of a tariff barrier. It is called a barrier because some restrictions have been set up. Governments can use trade barriers to increase or decrease, basically regulate foreign trade.

TARIFFS IN INDIA

The Indian Government, upon attaining independence from the British colonies in 1947 had imposed several trade barriers to reduce imports in the country and promote the traditional producers of the country from foreign competition. The industries in India had just begun setting up by the late 1950s and 1960s and foreign competition at this time would prevent them from thriving. Thus, India allowed imports of only specific goods such as machinery, petroleum, chemicals, etc. Not just India but many other countries during their early stages of development have imposed trade barriers and given priority to their domestic producers and industries.

Starting in the year 1991, the Indian Government decided to lift some trade barriers to enable the domestic goods to compete with global products which would ensure the improvement in quality and ability of the domestic workers to produce good at higher rates. This decision of the Indian Government was supported by most of the leaders of the country along with global associations. The lifting and relaxation of the tariffs enabled many Multi-National Corporations to set up their companies and offices in India.

Trade policy of India – Tariffs and taxes

Tariff barriers: India's average Most-Favoured-Nation applied tariff rate was 18.3% in 2021, the highest of any major world economy. India maintains high applied tariffs on various goods, including vegetable oils, apples, corn, motorcycles, automobiles, natural rubber, coffee, raisins, walnuts, and alcoholic beverages. High tariff rates also create a significant barrier to trade in other agricultural goods and processed foods. India's bound tariff rates on agricultural products are among the highest in the world, averaging 113.1 percent and ranging as high as 300.0 percent. The government of India has considerable flexibility to change tariff rates at any time, creating tremendous uncertainty for U.S. exporters. In June 2019, India implemented retaliatory tariffs ranging from 1.7% to 20% on 28 different products imported from the United States. The United States continues to urge India to address the common problem of excess capacity in the global steel and aluminium sectors. A WTO dispute settlement proceeding against India challenging the retaliatory tariffs is ongoing.

Restrictions on Import of goods

India has implemented import restrictions to manage domestic oversupply, including mung beans, pigeon peas, and black gram lentils. Boric acid imports are also subject to arbitrary quantity approval restrictions. India distinguishes between new and second-hand goods, requiring import licenses for remanufactured goods. Customs barriers and trade facilitation are complex, with tariff rates being modified ad hoc and subject to exemptions. U.S. exporters have raised concerns about under-invoicing and excessive searches and seizures of imports. The National Pharmaceutical Pricing Authority issued a notification in February 2017 to regulate medical device prices. India has imposed price controls on coronary stents and knee implants. Concerns from U. S. companies highlight that these controls do not consider production costs or innovation. Ethanol imports for fuel are banned, and biofuel imports require licenses. India provides substantial agricultural subsidies, which distort market competition and influence production decisions. The Minimum Support Price (MSP) program also affects market prices, leading to overproduction. Additionally, India maintains a food stockholding program for distribution and price stabilization, sometimes using subsidies for exports to manage stocks.

Tariffs on goods procured by the Government

India's government procurement practices vary among states, central government ministries, and micro, small, and medium-sized enterprises. The offset program requires companies to invest 30% or more in Indian-produced parts, equipment, or services. The Public Procurement Order 2020 mandates preferences for domestically manufactured goods, with changes to General Financial Rules requiring permission for global tender enquiries. The Ministry of New and Renewable Energy and Ministry of Power reserve products for local procurement. India is an observer to the WTO Committee on Government Procurement since 2010.

Property protection tariffs

India remains on the Priority Watch List in the 2022 Special 301 Report due to lack of progress on intellectual property (IP) concerns. Policy uncertainty and ineffective enforcement remain concerns, with high levels of piracy reported online. India's decision to abolish the Intellectual Property Appellate Board (IPAB) has created uncertainty around IP cases and royalty rate setting. Patent applicants face expensive oppositions, long waiting periods, and excessive reporting requirements. India's overall IP enforcement remains inadequate, and trade secret protection is a growing concern.

Tariffs applied on various services

The Indian government has a strong presence in major services industries, such as banking and insurance, but foreign investment in these sectors is limited. The Telecommunications Regulatory Authority's regulations on content aggregation and distribution hinder small and international content providers from interacting with local broadcasters. India also imposes restrictions on foreign direct investment in the retail sector, with single-brand retail investments exceeding 51% requiring sourcing at least 30% of the value from Indian sources. The government permits 100% FDI in business-to-business electronic commerce but prohibits it in business-to-consumer electronic commerce. India's banking system is primarily dominated by state-owned banks, holding 72% of market share, while privately owned banks are mainly Indian. Foreign banks face restrictions on branch expansion due to government policies. In insurance, the 2021 amendment increased foreign ownership limits but imposed new regulations favouring Indian residents in board positions and other areas. Electronic payment services are limited for foreign suppliers under policies by NPCI, with market share caps introduced. Foreign firms face barriers in legal, accounting, telecommunications, and satellite services, limiting their operations in India.

Barriers on Digital trade and e-commerce

India has proposed several data localization requirements, including local data centres in India, which could restrict cross-border data flows between the US and India. The Reserve Bank of India (RBI) has required payment service suppliers to store information related to electronic payments on Indian servers, which foreign firms argue is disadvantageous. The Digital Personal Data Protection Bill 2022 has concerns about an unspecified process for data transfer outside India and limited grounds for processing personal data outside India. The Indian government also introduced new regulations for internet services, including personal criminal liability and impractical compliance deadlines.

Other barriers

Traders are negatively impacted by lack of transparency regarding new laws and regulations, inconsistent notification to the WTO, and inadequate public notice and comment periods. This hinders input from traders and foreign governments, reducing predictability in the Indian market and limiting US companies' entry or operation. Concerns are raised bilaterally and multilaterally.