India's import regime remains complex, particularly its licensing and permit system and its tariff structure, with the latter having multiple exemption and rates varying according to product, user or specific export promotion programme.
This is the nub of the World Trade Organisation (WTO) trade policy review (TPR) meeting, which commenced on Wednesday in Geneva. Surveillance of national trade policy is an important activity running throughout the work of the WTO and at the core of this work is the TPR.
The Commerce Secretary, Dr Rahul Khullar, who is the country's chief trade negotiator in the WTO, is taking part with his team in the three-day India trade policy review that covers the period 2007 to April 30, 2011.
Reflecting a decrease in both agricultural and industrial average tariffs due to a shift towards lower tariffs, the simple average MFN (most favoured nation) tariff rate in India declined to 12 per cent in 2010-11 from 15.1 per cent 2006-07. But the complexity in tariff structure in India remains, the WTO said.
While India's tariff is announced in the annual budget, individual tariff rates can be changed during the year. Besides the standard tariff rate, importers are required to pay an additional duty (countervailing duty) and a special additional duty instead of local taxes.
In order to determine the “effective” applied tariff rate (i.e. basic duties and other customs duty) on a particular product, separate customs and excise tax schedules must be consulted, which adds to “the complexity of the tariff”.
While India's tariffs comprise mainly ad valorem rates (some 94 per cent tariff lines) levied on cost, insurance and freight value of imports, non-ad valorem rates apply to 690 tariff lines of which five are specific items, while 685 are alternate rates affecting textiles and clothing.
“The use of specific rates considerably increases protection for certain products, in some cases to around and above 600 per cent,” the WTO said.
Growth story
Commenting on India's growth story, WTO said its annual real GDP growth averaged over 8.4 per cent between 2006-07 and 2010-11, bolstered primarily by robust domestic demand.
Even as India's potential GDP growth has been estimated at between 8 and 8.5 per cent, WTO argues that “sustained non-inflationary growth” would call for “addressing bottlenecks and investing in infrastructure and education. It will also need the simplification of the business environment by eliminating over-regulation and defining more transparent trade and investment regime”.
While stating that India is a strong advocate of the multilateral trading system and historically remained a party to few regional arrangements, WTO observes that “regionalism has increasingly become an element of its overall trade policy objective of enhanced market access for exports”.
In its goal to double its share of global merchandise trade within five years, India is implementing a mix of policies including tax incentives, export promotion and credit facilitation schemes to ‘neutralise' the cost of imported inputs used in exports, the WTO said cautioning that “such schemes may contribute to the complexity of India's trade regime”.
The review noted that India's merchandise trade as a percentage of GDP continued to increase to 40.3 per cent of GDP in 2009-10 from 30.1 per cent in 2005-06.
While the share of manufactures in India's exports remained stable, the share of primary products decreased slightly from 33.9 to 33 per cent between the last and the latest review span.
Fuel products and machinery and transport equipment are the main components of Indian exports, followed by chemicals.
In its defence, the India report by the Commerce Ministry mandarins maintained that the country's commitment to trade openness did not falter even at the peak of global financial tsunami in a global milieu where deplorably numerous trade barriers were being erected.