Co - Authored with Pranav Sachdeva, Associate Director, Trade and Customs, Indirect Tax, KPMG in India
As India embarks on the journey of Modi 3.0, the vision for a self-reliant and globally competitive economy is at the forefront. The roadmap for growth is centered around key pillars of infrastructure development, digital transformation, skill enhancement, sustainable practices and a robust Trade and Product compliance policies. With the flagship program of “Make in India” and a vision of becoming a $ 5 Trillion economy by FY 2025-26, this Union Budget was poised to be a cornerstone in translating this vision 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 lead impetus to value add manufacturing in India.
In pursuit of GDP growth, the industrial policy, Trade policy and the Tariff policy is coming together. The interplay between them is reflected in products or sectors focused schemes like PMP, PLI, Public Procurement Policy, Quality Control Orders (QCO) etc.
The implementation of QCOs in last few years and an aim to create similar non-tariff barriers for over 2500 products in coming years, is a gist of transformative approach in trade policies, characterized 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 last few years. The focus has now been shifted to ink Trade agreements with developed economies like USA, US, EU etc., which shall provide access for Indian goods into these regions.
Every developed economy across the globe today is also looking forward to ink Trade partnership with India, in order to get access to world’s largest market and consumer base. The Union Budget 2024 introduces pivotal changes to self-certification for new Trade agreements. This marks a strategic move to align with global trade practices thereby, reducing burden on businesses and streamlining trade operations.
The Union Budget 2024 has proposed rationalization of customs duty across sectors, while extending the sunset clause of certain exemption. This clearly indicates the intent of the Government to keep the dice rolling for hassle free cross border transactions. Proposal for comprehensive review of the Customs Duty rate structure on the other hand, point towards the earlier objective of streamlining various exemptions provided since the inception of Customs Act.
Roadmap for digitalization of Customs documents is another welcoming 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 certain measures that shall streamline trade operations and address the common pain points of different industry players. Retrospective exemption from GST Compensation Cess on imports in SEZ is another trade facilitation move, which is welcomed by the industry.
The Union Budget 2024 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 to its full circle and sufficient infrastructure has been created, which has made India the second largest manufacturer of mobile phones. That said, this budget seems to take a conservative side on tariff barriers, barring few exceptions such as laboratory chemicals, E-bicycles etc.
India's solar energy policy has also seen significant advancements, particularly with the amendments introduced in the Union Budget 2024. Recognizing 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. Besides the reduction in duty on parts to foster manufacturing, reduction of Customs Duty on capital goods required for manufacturing these components is another step towards India's commitment in achieving its ambitious renewable energy targets and fostering a green economy.
This Union Budget 2024 has also provided focus on sunrise sectors for duty benefits, continuity of polices on smart phones manufacturing in India, setting up of Critical Mineral mission for better access to minerals required for technological developments, allocation of funds to toys and footwear PLI, which are significant steps in right direction to accelerate long term GDP growth.
The Union Budget 2024 lays out a comprehensive vision for enhancing India's trade policy framework. By rationalizing Customs duty rates and fostering for a more transparent and efficient trade environment, this budget aims to bolster 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 product focus 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.
A version of this article was published in The Financial Express on July 29 2024. The same can be read here.
