The 2007 trade-weighted average tariffs of 62% in agriculture and close to 9% in manufacturing still imply a significant wedge between domestic and world prices, and act as an indirect tax on exports through imports. This puts many Indian producers that rely on imported inputs at a competitive disadvantage while shielding uncompetitive domestic producers from competition. In services, despite significant liberalisation steps, which in the sectors examined here far exceed Indias GATS commitments, barriers remain high. Moreover, most of the services have for a long time been in the public domain and they suffer not only from high barriers to trade, but also from domestic constraints in terms of burdensome regulatory measures and state monopolies. At the same time, in an effort to offset the moderate to high taxation of intermediate products and barriers to services trade, India has opted to maintain and cultivate an extremely complex system of duty exemption schemes, special investment and establishment rules and special economic zones that provide incentives particularly to exporting firms.
* Przemyslaw Kowalski and Nora Dihel; Indias Trade Integration, Realising the Potential; OECD Trade Policy Working Paper No 88, May 2009