Beyond Tariffs

Prudent duty cuts for the US are fine, but India must guard against being excessively liberal in other areas

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India would do well to forego its conservative approach to world trade and look to lower tariffs where domestic vulnerabilities are nonexistent or manageable. Reciprocal tariffs by the US, where roughly a fifth of the country's merchandise shipments go, could be tackled much more easily than generally perceived. This is partly because import tariffs (basic customs duty) are no longer a key revenue source. India's customs revenues are just 4% of the value of its imported merchandise, even though tariff rates look high in global comparison. Besides, 80% of India's customs revenues come from less than 10% of the tariff lines, leaving enough room for adjustments. Carefully designed tariff concessions — even if these are large enough to meet the US demand for reciprocity — might not be harmful to the Indian economy because substantial sections of local industry can now withstand import duty cuts. In many cases, imported inputs will also make domestic value addition more efficient. Also, local units could potentially make incremental gains in export markets from the relatively higher tariff walls maj