India Targets Single-Digit Customs Tariff Slabs by FY28 Budget

Finance Minister Nirmala Sitharaman said the government plans to complete customs tariff rationalisation by the Union Budget 2027-28, aiming to reduce the number of tariff slabs to single digits. The move is part of broader efforts to simplify India’s customs structure, reduce trade-related complexities and improve competitiveness.

India currently has around 13 customs tariff slabs, although the government has already reduced the number to eight, including the zero-duty slab, through measures announced in the FY24 and FY26 Budgets. The average customs duty rate has also declined to 10.66 per cent from 11.65 per cent, according to government estimates. However, complexities remain due to specific duties on commodities such as fabrics, mixed tariff structures, agriculture infrastructure cess and inverted duty structures.

India has been gradually reducing its most-favoured-nation tariffs across nearly 12,400 tariff lines. After the average tariff increased from 13.4 per cent in 2016 to 17 per cent in 2023, it eased to slightly above 16 per cent in 2024 and is currently around 15 per cent. The government’s latest push is aimed at creating a simpler and more predictable tariff regime.

The FY27 Budget continued the rationalisation process by reducing the import duty on personal goods to 10 per cent from 20 per cent. It also removed customs duty exemptions on 17 medicines used for cancer and rare diseases, while export input restrictions were raised to 40 per cent. Further changes are expected as the government works towards a broader overhaul of the customs framework.

Free trade agreements (FTAs) are also expected to influence India’s effective import tariff levels. With the India-European Union trade agreement potentially taking effect before the end of the year and a possible trade agreement with the U.S., imports covered under preferential tariff arrangements could account for more than half of total imports.

Sitharaman, speaking at the CD Deshmukh Memorial Lecture organised by the National Council of Applied Economic Research, also highlighted India’s long-term economic transformation and its ambition to become a developed nation by 2047. Citing economic historian Angus Maddison, she noted that India’s share of global GDP on a purchasing power parity basis has recovered to around 8.5 per cent from less than 3 per cent in the early 1970s. She also pointed to challenges faced after Independence, including Partition, poverty, food security concerns and a limited industrial base, while highlighting institutions such as ISRO, BARC, BHEL and IITs as important contributors to economic development.

The Finance Minister also stressed that government borrowing should primarily be directed towards creating productive assets rather than increasing future liabilities. She said the government has nearly tripled capital expenditure over the past five years, with public spending helping encourage private investment and risk-taking. She urged state governments to focus borrowing on asset creation and improve revenue generation to reduce the future debt burden. According to the IMF, India’s general government debt stood at 83.4 per cent of GDP in 2026.

From a stock market perspective, customs tariff rationalisation could benefit import-dependent sectors such as electronics, automobiles, engineering and renewable energy by lowering input costs and supporting margins. Export-oriented companies could also benefit from a simpler trade regime and improved competitiveness. However, businesses that have historically benefited from high import protection may face greater competition from overseas players. Investors are likely to focus on companies with strong cost advantages, global supply-chain exposure and greater ability to benefit from lower import duties.

Disclaimer: The article is for informational purposes only and not investment advice.