Context: The Union Budget 2024-25, announced on February 1, 2025, has introduced a revised tariff structure aimed at rationalizing import duties and correcting India’s global trade optics.

• The Indian government has reduced peak customs duty rates, eliminating high tariff slabs of 150%, 125%, and 100%.

• The move is expected to address global criticism, particularly from countries like the U.S., where President Trump labeled India as a “tariff abuser”.

• The changes streamline the duty structure from 15 slabs to 8 slabs, signalling a lower tariff regime.

Key Changes Announced to Customs Tariffs 

• Reduced the total number of custom tariff rates to 8 including the zero rates from 15 earlier.

• Proposed to levy not more than one cess or surcharge. Therefore, exempted Social Welfare Surcharge on 82 tariff lines that are subject to a cess. 

• Apply appropriate cess to broadly maintain effective duty incidence except on a few items. 

Justification by Government

• Correcting “Bad Optics”: The government believes the old high tariff rates created a negative perception globally and rationalization will send a positive signal to global markets.

• Encouraging Trade & Investment: Lower tariffs are expected to boost foreign investment and enhance trade partnerships and the tariff cuts are part of an “autonomous review” of India’s customs duty structure.

• Alignment with Global Trade Practices: The rationalization aligns India with global tariff standards, making the country a more attractive trade destination.

Significance

• Amidst the ongoing tariff/trade war, steps to streamline its tariff structure underscore India’s dual approach of protecting domestic industries while facilitating crucial imports.

• Recently, the U.S. President has ignited a trade war by imposing sweeping tariffs on China, leading to retaliatory measures.

• The tariff rationalization will also help India change the image that India is a very high-tariff country, hurting American firms as accused by US.

What is a Trade war?

• Trade wars are economic conflicts involving tariffs or trade barriers that can disrupt global supply chains, raise costs, and slow economic growth.

How India is Protecting Its Economy from Trade War Impact? 

• Strengthening Domestic Manufacturing: Production-Linked Incentive (PLI) Scheme, Make in India, etc.

• Diversifying Trade Partners: Trade agreements with UAE, Australia, and EU

• Other: Reducing Dependence on China (China+1 strategy), internationalization of the Rupee, etc.