Summary:
India plans to simplify its customs duty structure by reducing tariff slabs to single digits by the FY28 Budget as part of broader trade reforms. Lower import duties and upcoming free trade agreements are expected to improve competitiveness, while import-dependent sectors could benefit from lower costs. The government also reaffirmed its focus on productive capital expenditure to support long-term economic growth and the Viksit Bharat 2047 vision.
On Thursday, Finance Minister Nirmala Sitharaman said that the Indian government's plan is to undertake customs tariff rationalization by 2027-28 Budget (FY28), bringing down the number of tariff slabs to single digits. This step comes in line with ongoing efforts to reform the customs system in India.
At present, there are about 13 customs tariff slabs in use, out of which most tariffs are expected to come down to single digits by 2027-28 (FY28) Budget, barring a few exceptions.
Customs Tariff Rationalisation Gains Momentum
India has been progressively lowering its MFN tariffs through nearly 12,400 tariff lines. It has reversed an earlier trend, as an increase in the average tariff was observed after 2016.
According to the analysis, India's simple average tariff rose from 13.4% in 2016 to 17% in 2023. The rate came down to a little above 16% in 2024 and currently stands at around 15%.
The government has already simplified the customs tariff slabs. The total customs tariff slabs have been simplified to eight, including zero-duty slab, following removal of multiple tariff slabs in FY24 and FY26 Budgets. The customs average duty rate has fallen to 10.66% from 11.65%, according to the government estimate.
Yet experts noted that complications exist due to specific duties on certain commodities like fabrics, mixed tariffs where both ad valorem and specific duty exists, agriculture infrastructure cess and pending corrections for inverted duty structure.
Tarrifs in International Trade Explained
FY27 Budget Measures and Trade Agreements
The FY27 Budget also carried forward the rationalization of customs duties by lowering import duties on personal goods to 10%, down from 20%. There was no custom duty exemption on 17 medicines used for cancer and rare diseases while export input restrictions were increased to 40%.
Even with all these changes, there is anticipation for a comprehensive revamp of the customs system.
In this context, it can be noted that FTAs will play a major role in deciding the real level of import tariffs. With the trade agreement between India and EU likely to come into effect before year-end and one with the US possibly in the offing, the share of imports under preferential schemes is set to cross 50%.
India’s Growth Journey and Viksit Bharat Vision
Sitharaman speaking at the CD Deshmukh Memorial Lecture organized by the National Council of Applied Economic Research (NCAER) stated that India’s ambition of becoming a developed nation by 2047 means that it is reattaining its rightful status.
Referring to the statistics of the economic historian Angus Maddison, she pointed out that the percentage of India in global GDP (PPP) was about one-third at the beginning of the Common Era and nearly 25% in 1500 CE. The percentage reduced to 16% in 1820, 12% in 1870, about 4% in 1950 and less than 3% in the early 1970s. Presently, the percentage stands at about 8.5% of global GDP (PPP).
She further elaborated on India’s economic difficulties post-independence which include Partition, poverty, food security problem and lack of an industrial base. She also mentioned the importance of institutions like ISRO, BARC, BHEL and IITs criticizing the License Quota Permit Raj for stifling private enterprise.
Focus on Asset Creation Through Borrowing
Sitharaman said that the government borrowing must concentrate on building productive assets and not adding to future liabilities. She further stated that no nation could live only on its own resources and the key was knowing how much to borrow, when to borrow, and for what reason.
The government has increased capital expenditure by almost three times during the past five years for the growth of the economy. According to Sitharaman, government expenditure promoted private sector investment and risk taking.
She further recommended that the state governments should borrow for asset creation and raise their revenues so that future burden from borrowing is reduced. Some state governments had come to the Centre for debt restructuring and reducing their interest costs.
According to the International Monetary Fund (IMF), India’s general government debt was 83.4% of GDP in 2026.
Impact on Indian Companies from Stock Market Perspective
Customs tariff rationalisation could benefit import-dependent sectors such as electronics, automobiles, engineering, and renewable energy by lowering input costs and improving margins. Export-oriented companies may also gain from a simpler trade framework and improved competitiveness.
However, companies that rely on import protection could face higher competition from cheaper overseas products. From a market perspective, investors may favour firms with strong cost advantages, global supply chain exposure, and the ability to benefit from lower duties.
