At the recent Hindustan Times Leadership Summit, Union finance minister (FM) Nirmala Sitharaman announced that India will overhaul its customs system by simplifying procedures, reducing discretion, improving transparency and cutting tariff rates that are “over the optimal level”.
The statement could not have come at a better time. Nearly 29% of India’s GDP today passes through customs as merchandise exports and imports, yet the system managing this vast flow still reflects an older era, only partly transformed by digital tools. India’s merchandise trade crossed $1.16 trillion in FY2025, but customs processes continue to slow business rather than speed it up. Tariff information remains scattered and difficult to find. Customs notifications are difficult to understand. Export incentives are sometimes lost to clerical or software errors rather than policy design. So, the FM’s statement presents an extraordinary opportunity. Unlike most reforms, customs modernisation requires relatively little public spending but produces system-wide gains: lower logistics costs, quicker movement of goods, fewer disputes and stronger investor confidence. Few areas offer as much return for as little investment.
Here are a few areas that must be the focus of such reforms.
To start with, tariff rationalisation must get high priority. Customs duty contributes only about 6% of total tax revenue and hence revenue is no more a justification for keeping tariffs high. More than 90% of imports fall under fewer than 10% of tariff lines, while over half of all tariff lines barely raise any revenue. Still, India taxes many industrial raw materials and intermediate inputs at high rates, raising production costs and weakening exports. The government must reduce tariffs on finished industrial goods to 5%, eliminate extreme outliers such as the 150% duty on alcohol, and fix inverted structures where inputs are taxed higher than finished products. Policy makers must focus on total import duty, not only basic customs duty, and ensure Quality Control Orders improve safety without blocking competition.
Tariff structure simplification is next. Officially, India has reduced basic customs duty slabs, but the burden survives through cess, surcharges and special levies. Real simplification means collapsing all charges into a small number of final duty bands that importers can actually understand.
Customs communication with traders also needs reform. Today, finding the correct import duty often requires professional consultants because customs notifications are not clear, often referring to older notifications or omitting Harmonized System (HS) codes altogether. Every new notification must be self-contained, written plainly and supported by a searchable government database that allows importers and exporters to determine obligations efficiently.
A single published table or online calculator with total payable duty for each product and not just basic duty — already standard in many developed economies — would remove confusion and dependence on intermediaries.
Exporters today deal with different codes for customs and duty drawbacks, causing frequent mismatches and rejections. A product should have one identity, and the drawback mechanism must use the same 8-digit HS codes as customs.
The next big reform area would be transparency in law enforcement. A single searchable national portal would reduce litigation and introduce predictability.
Direct Port Delivery must become standard practice, not a special facility across a few ports. Goods cleared under the Risk Management System (RMS), which is based on self-compliance, should move directly out of terminals. When officers frequently override RMS without explanation and do manual checking of goods, technology becomes meaningless. Every RMS deviation should be digitally logged, auditable and available under Right to Information.’
Physical inspection also must become transparent. CCTV-monitored inspection zones, preserved video records and guaranteed access would change the culture overnight by replacing discretion with documentation.
Customs technology must also grow smarter. Importers should be allowed to submit structured machine-readable data and not scanned documents that cannot be read by machines. Documents should be requested only when risk systems flag problems.
Support for exports also needs to be addressed urgently. Today, small mismatches between shipping bills and Export General Manifests block incentives. Corrections must be instant and automated. ICEGATE, the customs portal for traders, and the directorate general of foreign trade must operate on a common data backbone so exporters do not suffer for failures between government systems. The customs system generates scrips based on the shipping bill values under the RoDTEP (Remission of Duties and Taxes on Exported Products) scheme. Small-value scrips can only be sold at high discounts. Pooling of shipping bill values should be permitted so commercially viable scrip can be generated. Similarly, the rigid one-year validity for generation of scrips must be replaced by the earlier three-year period.
Another critical area where change is badly needed is human resources in customs. Customs officers should be retrained for opening markets, instead of processing paperwork. A larger number of customs officers should be deployed at India’s embassies and international ports to work on non-tariff barriers faced by Indian products, assist exporters and bring global best practices back to India. Customs officers posted abroad may also work with foreign customs authorities to remove bottlenecks faced by Indian goods and help exporters fully use free trade agreements.
Randomised customs and ports audits by independent agencies is important, so that the results show how customs and ports really work. Pre-announced, time-release studies, as done now, are not effective.
This may explain how countries with much larger trade than ours clear cargo in less than a day. Finally, audit all customs and related processes and rules. Most have become redundant and need to be dropped.
Customs reform is not just about policy housekeeping. It is industrial strategy, export policy, logistics reform and tax modernisation rolled into one. The FM has signalled the need for change. The government must now deliver it.
Ajay Srivastava is founder, Global Trade Research Initiative, and RV Anuradha is partner at Clarus Law Associates. The views expressed are personal