Impact of Tariff Policies on the Indian Economy
India’s tariff strategy has shifted in
recent years toward a mix of protectionism and targeted
liberalization, driven by domestic politics (e.g. farmer interests
and elections) and the government’s “Make in India” push. In
the 2024–25 budgets, Finance Minister Nirmala Sitharaman revised
basic customs duties across many products to encourage local
manufacturing and exports[1][2].
At the same time, India has used import bans and export controls in
agriculture (to control food inflation) and proposed safeguard
tariffs on steel and other goods (to protect domestic
industry)[3][4].
These moves have had broad impacts on manufacturing, agriculture,
and technology sectors, and on domestic consumer prices and
international trade flows.
Recent Tariff and Trade Policy Reforms
Customs
duty changes (Budget 2024): The government announced a
“comprehensive review” of customs rates to simplify
tariffs and correct inverted duties[5].
Key changes included cutting duties on precious metals (gold, silver
duties slashed to 6%)[6]
and on mobile phones and related parts (BCD cut from 20% to 15%)[7]
to boost exports and local value-addition. Duties were raised on
some inputs and components: e.g. ammonium nitrate fertilizer tariff
was increased from 7.5% to 10%, and certain telecom equipment (PCBA
boards) from 10% to 15%, to protect domestic capacities[8].
Exemptions were extended for 25 critical minerals (lithium, cobalt,
etc.) to support EV batteries and renewable energy industries[9].
Overall, these measures aim to strengthen manufacturing
(“Make in India”) by promoting local value-addition and
competitiveness[1][6].
Agricultural
trade measures: India has frequently used tariffs and bans to
manage farm prices. For example, in late 2023 the government banned
onion exports (imposing a minimum export price) to cool domestic
prices[10].
Ahead of key state elections in mid-2024, these curbs were loosened:
floor prices and export taxes on onions were cut (export tax cut
from 40% to 20%)[3],
and export limits on basmati rice were removed[3].
At the same time, India raised import duties on edible oils –
imposing a 20% tariff on crude palm/soybean/sunflower oils (raising
effective duties to ~27.5%) and 35.75% on refined oils[11]
– to shield oilseed farmers from global price drops. Such policies
help farmers but tend to raise costs for consumers and importers of
these commodities.
Industrial
safeguards: In 2024–25 the government proposed safeguard
tariffs to protect domestic steel. A temporary 12% duty was
imposed on certain steel imports for 200 days starting April
2025[12].
In August 2025 India recommended a three-year tariff of 12% (phasing
to 11%) on selected steel products to stem a surge of cheap imports,
especially from China[4][12].
This mirrors actions by other countries (the U.S. and EU) and
reflects domestic steelmakers’ concerns. Similar trade remedies
have been applied on other items (e.g. solar products, some
chemicals) as part of broader industrial policy.
Trade
facilitation reforms: To align with new trade agreements and
ease commerce, India eased rules of origin and documentation. For
instance, it allowed self-certification of origin (“proof of
origin”) instead of official certificates[13].
It also extended duty-free return windows for repaired imports and
adjusted warehousing rules to simplify imports under manufacturing
schemes[14][15].
These measures facilitate both imports of inputs and exports of
finished goods.
Tariff
levels and protection: India’s average applied tariff remains
relatively high. WTO data show India’s trade-weighted average
tariff at about 12% in 2024[16],
with some sectors much more protected (e.g. up to 150% on alcohol
and tobacco, 110% on cars[17]).
Though India unilaterally liberalized post-1991, since 2018 tariff
protection has inched up (to ~17% average by 2022, then ~17% in
2023[18]).
This mix of targeted cuts and broad protections reflects a cautious
stance: rewarding priority sectors with liberal inputs, while
guarding others with higher duties.
Impact on Key
Sectors
Manufacturing:
The tariff revamp aims to bolster local manufacturing. Duty
reductions on mobile phones and components have supported India’s
fast-growing electronics sector (domestic smartphone production
quadrupled in 6 years, exports rose ~100×)[19].
Exemptions for solar panel machinery and critical minerals nurture
renewables and high-tech industries[20][9].
However, higher duties on raw inputs can raise costs: e.g. a higher
tariff on ammonium nitrate protects Indian fertilizer makers but may
raise fertilizer prices for farmers[8].
Steel protection (duties, safeguards) helps local mills but may slow
downstream industries (like construction or autos) that use steel.
The government’s logic is that initially shielding industries
(e.g. telecom boards at 15% duty vs 10%) will give them breathing
room to scale up. Over the long run, lower tariffs on production
machines and intermediates (as planned in rationalization drives[5])
should reduce “inverted duty” problems (where inputs cost more
than finished goods). Overall, tariff policy is now more proactive
in driving “Make in India” targets, with mixed effects on
costs and competitiveness.
Agriculture:
Tariff and non-tariff measures have been prominent in agriculture.
High tariffs on edible oils and bulk commodities protect farmers’
incomes when prices fall abroad[11].
Conversely, export bans and duties on staples (wheat, non-basmati
rice, sugar, pulses and onions) curb domestic inflation but hurt
exporters[21].
For example, India’s 2022–23 bans on wheat and sugar exports
have tightened global supply and helped domestic consumers, but they
drew international criticism (see Trade Agreements below).
The result is volatile price swings: heavy export controls were
introduced when food inflation rose, and eased when harvests
improved (as seen with onions)[22][23].
These policies have deep political roots: protecting farmers and
consumers is electorally salient. However, by the end of 2024,
persistent controls led to distortions (see below) and constraints
on trade.
Technology
and electronics: India’s tech sector is shaped by these
policies too. The government is lowering duties on electronics
inputs (e.g. copper for resistors) to increase domestic
value-add[2],
while supporting battery/chip efforts with duty waivers for
minerals. Yet India still relies heavily on imports for high-tech
components. Tariff cuts for electronics aim to lower production
costs, but global tech trade frictions pose challenges. For
instance, U.S. steel and aluminium tariffs have reverberated into
supply chains, and Indian solar exporters may now face U.S. import
duties (recently extended to 2030)[24].
Overall, India’s technology and electronics industries benefit
from selective liberalization (inputs, minerals) but remain
vulnerable to high global tariffs on critical products.
Domestic and International Trade Effects
India’s tariff interventions have
significant trade effects both at home and abroad. Domestically,
protective tariffs and bans help contain inflation but can reduce
consumer choice. For instance, onion controls show this
trade-off: restricting exports in late 2023 lowered domestic prices,
but after elections India lifted the ban and floor price in 2024[22],
then removed export duties in 2025 to support farmers[23].
This flip-flopping highlights how politics, not just economics,
drives policy. In agriculture, supply constraints from export bans
have also contributed to smuggling and grey markets. A Reuters
analysis showed that after India banned wheat, sugar and other
staples (2022–2023), an estimated 2.0+ million tonnes of these
goods were smuggled into Bangladesh yearly (versus ~0.3 million
tonnes before)[25].
Smugglers even traded gold for grains across India’s border with
Bangladesh, exploiting price disparities caused by India’s export
curbs[25].
Chart: Sharp rise in gold seizures on India’s Bangladesh
border (2012–2023) after India imposed export controls on
staples[25].
The above chart (Reuters, 2024) illustrates how India’s
restrictions on food exports inadvertently spurred a “gold-for-grain”
smuggling trade. Such distortions undermine tax revenues and global
food availability. Similarly, higher tariffs on imports (e.g. on
edible oils) raised India’s import bill but protected farmers.
Manufacturing firms must adjust to these shifts: some intermediate
imports got cheaper (gold, silver, electronics parts) while others
became more expensive (fertilizers, steel). Overall, India’s
current account has been in surplus (0.6% of GDP in FY2024-25[26]),
helped by robust IT and service exports. But goods export growth has
slowed (to ~3.9% in late 2024[26]),
partly reflecting global headwinds and reciprocal tariffs (e.g. U.S.
hiking tariffs on some Indian goods).
Trade
Agreements and Disputes
On the international front, India is
simultaneously courting new trade partnerships and managing disputes.
In July 2025 India and the UK signed a landmark UK-India Free
Trade Agreement (FTA). This will cut India’s average tariff on
UK products from ~15% to 3%[17],
slashing duties on items like whisky (150%→75%→40%) and cars
(capped at 10% vs ~110% now)[17].
Such agreements reflect India’s strategic opening: it is also
negotiating FTAs with the EU, Australia, and others (India signed
FTAs with Australia and EFTA in 2022–2024). These deals often
protect sensitive sectors (sugar, dairy, poultry, etc.), but aim to
boost exports in IT services, pharmaceuticals, and engineering.
However, India still maintains high tariffs on many imports. Notably,
key agricultural products (sugar, rice) and some manufactured items
(luxury goods) remain largely sheltered[17].
India has also worked to resolve trade disputes. In early 2024,
India and the US bilaterally settled all their WTO cases.
Under that deal, India agreed to cut import duties on certain U.S.
food exports (cranberries, blueberries, frozen turkey) to 5–10%[27],
and withdrew retaliatory tariffs on U.S. steel and poultry[27][28].
This pragmatic resolution underscores India’s commitment to trade
diplomacy under Prime Minister Modi’s administration. On the flip
side, India’s own export restrictions have drawn WTO scrutiny. In
late 2023 WTO members (US, EU, others) asked India to justify its
five-year extension of free food handouts and rice export bans[29].
India defended these as “food security” measures, but the
questions signal international pressure to relax controls.
Regionally, India continues to leverage its position. It refused
to join the Asian RCEP trade pact (concerns over Chinese imports) and
is pursuing FTAs instead. It also initiated safeguard investigations
(e.g. against Pakistani exports of paper) to enforce fair trade.
Overall, India’s trade policy mix – opening new FTAs while using
tariffs for strategic ends – reflects its dual goal: integrating
into global markets without undermining nascent industries and voter
constituencies.
Conclusion
India’s current tariff landscape is
shaped by a balancing act between protectionist impulses and
selective liberalization. The government has aggressively
revised tariffs to support “Make in India” and strategic sectors
(electronics, defense, renewables)[1][6],
while simultaneously imposing controls to placate farmers and
stabilize domestic prices[3][10].
These policies have helped some industries but introduced new costs
and complexities: exporters face volatile regulations, importers
grapple with higher input prices, and smuggling has risen in certain
commodities[25].
Going forward, India’s challenge will be to rationalize its tariff
regime (as signalled by the promised review of customs duties[5])
while deepening international trade ties. The outcome will
significantly influence India’s growth prospects in manufacturing,
agriculture and technology, as well as its role in the global
economy.
Sources: Government releases and recent media reports on
India’s trade and budget policies[1][6][3][27][29],
including data from official statistics and trade analysis.
[1]
[5]
[19]
Budget 2024: Customs duty rejig to fire up Make in India engine - The
Economic Times
https://economictimes.indiatimes.com/news/economy/foreign-trade/budget-2024-customs-duty-rejig-to-fire-up-make-in-india-engine/articleshow/111969395.cms?from=mdr
[2]
[6]
[7]
[8]
[9]
[13]
[14]
[15]
[20]
Direct Tax Reforms 2024 | Grant Thornton Bharat
https://www.grantthornton.in/insights/media-articles/budget-2024-customs-duty-announcements-unlocking-trades-potential/
[3]
[11]
India's farm trade measures to placate farmers | Reuters
https://www.reuters.com/world/india/indias-farm-trade-measures-placate-farmers-2024-09-16/
[4]
[12]
India recommends import tariffs for three years on some
steel products | Reuters
https://www.reuters.com/world/india/india-recommends-import-tariffs-three-years-some-steel-products-2025-08-18/
[10]
India bans onion exports until March 31, 2024 | Reuters
https://www.reuters.com/world/india/india-bans-onion-exports-until-march-31-2024-2023-12-08/
[16]
[17]
UK-India Free Trade Agreement - House of Commons Library
https://commonslibrary.parliament.uk/research-briefings/cbp-10258/
[18]
The time is right to make a European Union-India trade deal happen
https://www.bruegel.org/policy-brief/time-right-make-european-union-india-trade-deal-happen
[21]
[25]
Grains for gold: Indian export curbs drive boom in barter smuggling |
Reuters
https://www.reuters.com/world/india/grains-gold-indian-export-curbs-drive-boom-barter-smuggling-2024-12-04/
[22]
India's government lifts ban on onion exports, sets floor price |
Reuters
https://www.reuters.com/markets/commodities/indias-government-lifts-ban-onion-exports-sets-floor-price-2024-05-04/
[23]
India to scrap 20% onion export duty from April 1 | Reuters
https://www.reuters.com/world/india/india-scrap-20-onion-export-duty-april-1-2025-03-22/
[24]
India's solar industry navigates between US tariffs and Chinese
suppliers | AP News
https://apnews.com/article/solar-panels-india-china-tariffs-trump-5233702c2d606c83707033e1f792f3d1
[26]
India economic outlook | Deloitte Insights
https://www.deloitte.com/us/en/insights/topics/economy/asia-pacific/india-economic-outlook.html
[27]
[28]
India-US successfully resolve all seven pending WTO disputes
bilaterally | World News - Business Standard
https://www.business-standard.com/world-news/india-us-successfully-resolve-all-seven-pending-wto-disputes-bilaterally-124032300201_1.html
[29]
India faces queries from WTO on PMGKAY extension and rice export ban
| India News - Business Standard
https://www.business-standard.com/india-news/india-faces-queries-from-wto-on-pmgkay-extension-and-rice-export-ban-123112700356_1.html
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