Republic Day through Beating Retreat up to Budget unveiling on February 1 are action packed with pomp and pageantry culminating in policy, but this year the focus will firmly be on policy right throughout. The chief guests at the Republic Day parade are the Presidents of the European Council and European Commission and they are set to announce what is called the mother of all trade deals, the India-EU free trade agreement, a day later. It doesn’t end there—there is anticipation that the India-US bilateral trade agreement could also get the greenlight any moment now, and in fact, the bets are on finance minister Nirmala Sitharaman further simplifying India’s own tariffs in the budget.
For all his bravado, the don of White House did hit the nail right on the head when he accused India of being a big abuser of tariffs—the customs duties India impose on imports from countries like the US are way higher than what those countries themselves charge. For example, while Indian pharmaceuticals, IT services, etc., generally had zero tariffs, while India’s bread-and-butter, garments and textiles, as well as crucial export items like auto components, marine exports like shrimp, etc., all had single-digit customs duty.
But in reverse, India had, and still continues, to charge way higher tariffs on imports, including from the US. Even after the customs duty slabs were simplified down to eight slabs in last year’s budget, the fact is that there are hundreds of possible permutations and combinations that could apply on any specific import—ranging from various cesses, duties based on weight and unit, sin duties on luxury products for example and mixed duties.
For example, an electronics businessman recounted to me how a display he was importing, charged at 5 per cent suddenly got him a demand for 18 per cent because there was a connector attached to it, and connectors are charged at 18 per cent—these kind of cases abound in all these bureaucratic overreach. Oh, and don’t forget, there is also IGST in four slabs applying on top of these customs duties.
The question now is whether Budget 2026 will dare to finally bite the bullet. There is, after all, a pressing need for these measures considering the situation with the US. At the same time, domestic business lobbies will try hard to continue with the present maze of duties and cesses, as it helps them to protect their turf.
There are rumours that in continuation of last year’s simplification to eight slabs, the budget could well bring them down to five or six, and perhaps do away with the cesses, which Trump had singled out as non-tariff barriers. But the question is whether Modi and Sitharaman will go the whole hog and declare to the world that India is open for business, or will continue pleasing the powerful pulls and pressures from the domestic lobbies, citing political expediency. It could well determine the future trajectory of Indian economy and trade.
