The Hidden Layers of Protection in India’s Import Policy

Launched a decade ago, the Make in India initiative aimed to increase the manufacturing sector’s share of GDP to 25% and generate 100 million additional industrial jobs (from about 60 million) by 2025. Since 2020, the government has also introduced sector-specific production-linked incentive (PLI) schemes to drive manufacturing growth further. However, despite these efforts, the sector’s contribution remains well below the targeted levels.

For manufacturing to expand from 13% to 25% of GDP over a decade—while the economy grows at 6.5% annually—the sector itself must achieve an annual growth rate of approximately 13.6%.

Importance of exports for a thriving manufacturing sector

For manufacturing to expand from 13% to 25% of GDP over a decade—while the economy grows at 6.5% annually—the sector itself must achieve an annual growth rate of approximately 13.6%. Achieving this scale of expansion cannot rely solely on domestic demand; a significantly stronger export performance will be essential.

To enhance India’s participation in Global Value Chains (GVCs) and boost its share in global manufacturing exports—currently at just 1.8% (2022), lagging behind even smaller economies like Vietnam (2%)—policy interventions are essential. A key enabler of GVC integration is the import of intermediate goods. However, a comparative analysis with leading Asian competitors reveals that India imposes significantly higher import duties (Table 1), both overall and specifically on intermediate goods, which hampers its competitiveness.

Table 1: Most Favoured Nation (MFN) tariff levels on total and intermediate goods (simple average)

Source: Based on WITS, World Bank

Layers of import protection

An interesting fact is that import protection is not driven solely by customs duties but also by additional duties and cesses, which further increase the overall cost of imports. These include:

• Anti-dumping duties

Dumping occurs when a country exports goods at prices lower than its domestic market cost to capture a larger share of the global market. Dumping causes harm to domestic producers of competing goods. To counter this, anti-dumping duties are imposed on such imports to bridge the gap between their export price and domestic price Article VI of the General Agreement on Tariffs and Trade (GATT) authorizes the imposition of anti-dumping duties to address such unfair trade practices.

• Cesses

The Social Welfare Surcharge (SWS), introduced in 2017-18, is levied at 10% on the aggregate customs duties of imported goods to fund the government’s social welfare schemes. However, certain products, such as gold, silver, platinum, specific medical devices, and essential imports, may be exempted. Additionally, imports under specific Free Trade Agreements (FTAs) may be exempt from SWC if the Basic Customs Duty (BCD) is waived under the agreement.

The Agriculture Infrastructure and Development Cess (AIDC), introduced in 2021, applies to certain imported goods, with the revenue generated being allocated to agricultural infrastructure and related development projects.

Composite Duty Calculation

To understand the impact of additional duties and charges on India’s imports, consider Alloy Steel Chisels/Tools and Hydraulic Rock Breakers—key machinery components. These products fall under the 6-digit HS Code 843149. Below is the key constituting of duties/cesses on these products.

• BCD of 7.5 per cent
• In 2024, India imposed ADD on imports of these products from South Korea and China to counter unfair pricing and protect domestic manufacturers. According to the government notification, the applicant for the anti-dumping investigation claimed that dumped imports from these countries were causing material injury to the domestic industry. As a result, the proposed duty rates range from 4.5% to 131.1% for China and 0% to 52.7% for South Korea (WTO, 2025).
• SWS of 10 per cent of aggregate custom duties

The import value with only Basic Customs Duty (BCD) is approximately 22.2 per cent short of the import value with composite duty, highlighting that the actual protection on Indian imports is higher than BCD alone for products where anti-dumping duties are imposed.

Given the multiple layers of protection, it is essential to compute the composite protection. The following section analyses the total impact of various duties, cesses, and charges for USD 100. Given the wide range for ADD for both the partner countries, we assume a rate of 30 per cent for this calculation.

A = Total custom duty= (BCD + ADD) = 7.5 + 30 = 37.5

B = SWS = 0.10*BCD= 0.10*7.5 = 0.75

C =Composite duty = A + B = 38.25

Import value with composite duty = 100+38.25 = 138.25

Import value with only BCD = 100+7.5 = 107.5

The import value with only Basic Customs Duty (BCD) is approximately 22.2 per cent short of the import value with composite duty, highlighting that the actual protection on Indian imports is higher than BCD alone for products where anti-dumping duties are imposed.

NTMs add to the protection

The number of products under QCOs has surged from 106 in 2014 to 732 as of September 2024

In addition to the various kinds of duties and cesses, imports also face protection in the form of Non-Tariff Measures (NTMs), which are policy measures other than ordinary customs tariffs that can have an economic effect on trade. Technical barriers to trade (TBT) and Sanitary and Phytosanitary (SPS) measures are the two widely used NTMs. TBT includes measures such as labelling, standards on technical specifications and quality requirements, and other measures protecting the environment. SPS measures include restrictions on substances, ensuring food safety, and preventing the dissemination of diseases or pests. India has increasingly implemented Quality Control Orders (QCOs) to enforce product standards. The number of products under QCOs has surged from 106 in 2014 to 732 as of September 2024 (Indian Express, 2024). While these measures aim to ensure product quality and consumer safety, they also act as trade barriers.

High import barriers limit India’s ability to participate in GVCs and reduce its potential to capitalise on the ‘China Plus One’ strategy, where global firms seek to diversify supply chains beyond China.

This protectionist approach presents challenges to India’s integration into Global Value Chains (GVCs), which account for approximately 70% of global trade (ADB, 2018). High import barriers limit India’s ability to participate in GVCs and reduce its potential to capitalise on the ‘China Plus One’ strategy, where global firms seek to diversify supply chains beyond China.

References

Asian Development Bank. (2018). Key indicators for Asia and the Pacific 2018. Retrieved from

https://www.adb.org/sites/default/files/publication/443671/ki2018.pdf

Indian Express. (2024). Quality control orders now cover 732 products helping curb cheap quality imports: Goyal. Retrieved from

https://indianexpress.com/article/business/quality-control-orders-now-cover-732-products-helping-curb-cheap-quality-imports-goyal-9623979/

World Trade Organization. Trade Remedies Data Portal. Retrieved from

https://trade-remedies.wto.org/en/antidumping/measures