By Himanshu Tewari
At the outset of Modi 3.0, the vision for a self-reliant and globally competitive economy is at the forefront. The road map for growth is centred around key pillars of infrastructure development, digital transformation, skill enhancement, sustainable practices, and robust trade and product compliance policies. With the flagship programme of Make in India and a vision of becoming a $5-trillion economy by FY26, this Union Budget was poised to be a cornerstone in translating these into actionable policies and investments.
In the last decade, India has witnessed a paradigm shift in its approach towards trade policies, driven by a combination of regulatory reforms, technological advancements, and increased emphasis on quality and safety standards. The economic cycle of trade policies has taken a turn globally and for India also. As part of the change, trade policy seems to have shifted its focus from foreign exchange earnings to investment-led impetus to value-add manufacturing in India.
In pursuit of GDP growth, industrial, trade, and tariff policies are coming together. The interplay between them is reflected in products or sectors focused schemes like phased manufacturing programme (PMP), production-linked incentive (PLI), public procurement policy, quality control orders (QCO) etc.
The implementation of QCOs in the last few years and an aim to create similar non-tariff barriers for over 2,500 products in the coming years is a gist of the transformative approach in trade policies, characterised by comprehensive tax reforms, technological integration, and a heightened focus on quality and safety. India’s approach on negotiating trade agreements has also witnessed a change in the last few years. The focus has now been shifted to ink trade agreements with developed economies like the US, UK, and European Union, which shall provide these regions access to Indian goods.
Every developed economy is also looking forward to trade partnership with India to get access to the world’s largest market and consumer base. The 2024 Budget introduces pivotal changes to self-certification for 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 duty across sectors, while extending the sunset clause of certain exemptions. This indicates the intent of the government to keep the dice rolling for hassle-free cross-border transactions. The proposal for comprehensive review of the customs duty rate structure, on the other hand, points to the earlier aim of streamlining exemptions provided since the inception of the Customs Act.
The road map for digitalisation of customs documents is another welcome step to align with global practices. Extending the period for re-export and re-import of goods and allowing acceptance of self-certification as a proof of origin, in addition to country of origin, are measures that shall streamline trade operations and address the common pain points of different industry players. Retrospective exemption from goods and services tax compensation cess on imports in special economic zones is another move to facilitate trade that is welcomed by industry.
The Budget has also proposed to reduce customs duty on mobile phones. This step can also be perceived as an indication of maturity for schemes like PMP, where the policy has come full circle and sufficient infrastructure has been created to make India the second largest manufacturer of mobile phones. That said, this Budget seems to take a conservative stance on tariff barriers, barring a few exceptions such as laboratory chemicals and e-bicycles.
India’s solar energy policy has also seen significant advancements, particularly with the amendments introduced in this Budget. Recognising the critical role of solar energy in achieving sustainable development goals, the government has made strategic policy adjustments to bolster domestic manufacturing of solar cells and panels. The reduction in duty on parts to foster manufacturing and customs duty cut on capital goods required for manufacturing these components, also hints at India’s commitment to achieving its ambitious renewable energy targets and fostering a green economy.
This Budget has focused on sunrise sectors for duty benefits, continuity of polices on smartphone manufacturing, setting up a Critical Mineral Mission for better access to minerals required for tech development, and allocation of funds to toy and footwear PLI, which are significant steps to accelerate long-term GDP growth.
Budget 2024 lays out a comprehensive vision for enhancing India’s trade policy framework. By rationalising customs duty rates and fostering a more transparent and efficient trade environment, it aims to improve India’s position in the global marketplace. These initiatives, coupled with strategic investments in infrastructure and technology, are poised to drive export growth and attract foreign investments. As these measures take effect, they hold the potential to not only boost economic activity but also ensure that India remains a competitive and attractive destination for international trade.
The change in focus on production-driven trade policy continues to reflect in tariff policy changes. As these measures take effect, they will not only bolster India’s position in the global trade arena but also contribute significantly to the country’s overall economic growth.
Thea author is a partner in trade and customs indirect tax at KPMG in India.
Co-authored with Pranav Sachdeva, associate director, trade and customs, indirect tax, KPMG in India
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