India’s strengthened trade policy – Opinions News

By Himanshu Tewari

At the start of Modi 3.0, the vision of a self-reliant and globally competitive economy is at the forefront. The growth roadmap is centred around key pillars of infrastructure development, digital transformation, skill enhancement, sustainable practices and sound trade and product compliance rules. With the flagship Make in India programme and the vision of becoming a $5 trillion economy by fiscal year 2026, this Union Budget was supposed to be the cornerstone in translating these into actionable policies and investments.

In the last decade, India has witnessed a paradigm shift in its approach to trade policy, driven by a combination of regulatory reforms, technological advances and an increased focus on quality and safety standards. The economic cycle of trade policy has changed globally as well as in India. As part of this shift, trade policy seems to be shifting its focus from foreign exchange gains to investment incentives for value-added production in India.

In the pursuit of GDP growth, industrial, trade and tariff policies are converging. Their interaction is reflected in product- or sector-focused schemes such as Phased Production Programme (PMP), Production Linked Incentives (PLI), public procurement policies, Quality Control Orders (QCO), etc.

The implementation of QCOs over the past few years and the aim of creating similar non-tariff barriers for over 2,500 products in the coming years are at the heart of a transformative approach to trade policy, characterised by comprehensive tax reforms, technological integration and an increased focus on quality and safety. India’s approach to negotiating trade agreements has also changed over the past few years. The focus has now shifted towards signing trade agreements with developed economies such as the US, UK and the EU that will provide access to Indian goods in these regions.

Every developed economy also looks forward to a trade partnership with India to gain access to the world’s largest market and consumer base. Budget 2024 introduces key changes in self-certification of new trade agreements. This marks a strategic move to align with global trade practices, thereby reducing the burden on businesses and streamlining trade operations.

The Budget has proposed rationalisation of customs duties across sectors, while extending the sunset clause for certain exemptions. This indicates the government’s intention to keep the dice rolling for hassle-free cross-border transactions. On the other hand, the proposal for a comprehensive review of the customs duty rate structure indicates the earlier aim to streamline exemptions provided since the inception of the Customs Act.

The roadmap for digitalisation of customs documents is another welcome step towards aligning with global practices. Extending the period for re-export and re-import of goods and allowing acceptance of self-certification as proof of origin, in addition to country of origin, are measures that will streamline trade operations and address common concerns of various players in the industry. Retrospective exemption from GST of compensatory import tax in special economic zones is another step towards facilitating trade, which is welcomed by the industry.

The budget also proposed a reduction in customs duty on mobile phones. This move can also be seen as a sign of maturity for programmes like PMP, where the policy has come full circle and enough infrastructure has been created to make India the second largest manufacturer of mobile phones. Despite this, this budget seems to have taken a conservative stance on tariff barriers, barring a few exceptions like laboratory chemicals and electric bikes.

India’s solar energy policy has also seen significant progress, especially with the amendments made in this budget. Recognising the critical role of solar energy in achieving the Sustainable Development Goals, the government has made strategic policy changes to boost domestic production of solar cells and panels. The reduction in customs duty on components to support manufacturing and the reduction in customs duty on capital goods required for manufacturing these components also indicate India’s commitment to achieving its ambitious renewable energy targets and supporting a green economy.

This Budget has focused on emerging sectors for customs benefits, continuity of policy on smartphone manufacturing, establishment of critical minerals mission to ensure better access to minerals essential for technology development and allocation of funds for PLI in toys and footwear sector, which are significant steps to accelerate long-term GDP growth.

Budget 2024 presents a comprehensive vision to strengthen India’s trade policy framework. By rationalising tariffs and fostering a more transparent and efficient trading environment, it aims to improve India’s position in the global market. These initiatives, coupled with strategic investments in infrastructure and technology, are poised to drive export growth and attract foreign investment. As these measures come into effect, they have the potential not only to boost economic activity but also ensure that India remains a competitive and attractive destination for international trade.

The shift in focus towards production-based trade policy continues to be reflected in tariff policy changes. As these measures come into effect, they will not only strengthen India’s position in the global trade arena but also contribute significantly to the country’s overall economic growth.

The author is a partner in the Indirect Tax, Customs and Trade practice at KPMG in India.

Co-author: Pranav Sachdeva, Associate Director, Trade & Customs, Indirect Taxes, KPMG India

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