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
[2] [6] [7] [8] [9] [13] [14] [15] [20] Direct Tax Reforms 2024 | Grant Thornton Bharat
[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
[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
[22] India's government lifts ban on onion exports, sets floor price | Reuters
[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
[29] India faces queries from WTO on PMGKAY extension and rice export ban | India News - Business Standard
