While tariff rationalization aims to enhance economic efficiency, it may also pose challenges to certain sectors. Critically assess the potential trade-offs involved in the Union Budget 2025-26's approach to tariff reforms.

investment

• Reduce compliance burden
• Ease of doing business
• Scale the production
• Export promotion

2025 Budget provisions on tariff rationalisation:

1. Simplification of process and structure

• Total customs slabs reduced to 8
• only one cess or surcharge for most of sectors
• Ease in compliance process.

1. Assessment time limit relaxed to 2 years.

2. Import user timeline limit raised to 2 years.

3. Exemptions to certain sectors like: → local EV production importing critical minerals → Technology sector → chips → Shipbuilding sector

4. Medicine custom duty reduction: → 36 life saving drugs → 5% on critical medicines

Potential trade-offs

1. Cross subsidisation effort as opportunity cost to incentivise other sectors is lost.
2. Inverted duty structure still remain in some areas.
3. Domestic manufactures in those sectors may → disadvantaged.
4. Loss of revenue to government.
5. Issue of dumping of excess imports.
6. Hinders local research and development.
7. May discourage local critical mineral producers.

Way forward:

1. Streamline measures across sectors.
2. Protect domestic interests.
3. Diversification of imports.
4. Integration of domestic players in global value chain.