India Import: Non-Tariff Barriers
Tariffs and Other Charges on Imports
India's tariff regime is characterized by pronounced disparities in bound rates, i.e., the rates that under World Trade Organization (WTO) rules generally cannot be exceeded, versus applied rates, the actual rates charged. According to the WTO, India's average bound tariff rate was 48.6 percent, while its applied tariff for the 2017 fiscal year (latest data available) was 13.8 percent across all goods. India has bound all agricultural tariff lines in the WTO, while over 30 percent of India's non-agricultural tariffs remain unbound, i.e., there is no WTO ceiling on the rate.
India's average applied tariff on industrial goods remains high due high tariffs on automobiles, motorcycles, natural rubber, textiles and apparel, and fish. In November 2008, India increased tariffs on certain steel products from zero percent to 5 percent. The application of tariffs and taxes on textiles is nontransparent.
Over the past several years, however, the government has steadily reduced Most Favored Nation (MFN) tariffs applied to non-agricultural goods, including a reduction in the applied duty on most industrial products. In order to boost the local manufacturing sector, India has taken steps to reduce and simplify the general rate of central excise duty for domestic products (called CENVAT) and “additional duty” for imported goods (to be applied on top of import tariffs). As of 2022, excise duties average 12.36 percent.
Because India imposes a separate charge on imports equivalent to the excise tax, the total assessment for imported products changes as these excise taxes change. Many of India's bound tariff rates on agricultural products are among the highest in the world, ranging between 100 percent and 300 percent, and averaging 113 percent as of 2022. While many of India's applied tariffs are lower, they still represent a significant barrier to trade in agricultural goods.
The government publishes applied tariff and rates of other duties and charges applicable to imports. To determine the applied tariff or rate of other duty or charge applicable to a particular product, importers must consult separate customs and excise tax schedules and cross reference these schedules with any applicable customs or excise notification that may subject the product to higher or lower rates than set forth in the schedules (assuming the importer is able to determine that any such notification exists). This system lacks transparency and imposes significant burdens on importers. India is currently developing an online database with searchable applied tariff and other duties and charges rates, but it is not yet available.
Import Licensing
India maintains a "negative list" of imported products subject to various forms of nontariff regulation. The "negative list" is currently divided into three categories: banned or prohibited items (e.g., tallow, fat, and oils of animal origin); restricted items that require an import license (e.g., livestock products, certain chemicals); and “canalized” items (e.g., petroleum products, some pharmaceuticals, and bulk grains) importable only by government trading monopolies subject to cabinet approval regarding timing and quantity. India, however, often fails to observe customary transparency requirements, such as publication of information in the Official Gazette or notification to WTO Committees, which in practice, presents a barrier to trade.
The government allows imports of second-hand capital goods by the end users without requiring an import license, provided the goods have a residual life of at least five years. Refurbished computer spare parts can only be imported if an Indian chartered engineer certifies that the equipment retains at least 80 percent of its residual life, while refurbished computer parts from domestic sources are not subject to this requirement. The government has required import licenses for all imports of remanufactured goods since 2006. India's Foreign Trade Policy provides no criteria for different levels of transformation that would distinguish remanufactured, refurbished, reconditioned, and second-hand goods.
Customs Procedures
Issues have emerged regarding the application of customs valuation criteria to import transactions. Valuation procedures allow India's customs officials to reject the declared transaction value of an import when a sale is deemed to involve a lower price compared to the ordinary competitive price. Some exporters have reported that India's customs valuation methodologies do not reflect actual transaction values and effectively increase tariff rates.
Motor vehicles may be imported through only three specific ports and only from the country of manufacture. Only right-hand drive vehicles may be imported.
Government Procurement
Government procurement in India is decentralized, and all state (sub-central) and public sector agencies have their own procurement organizations. Different procurement practices are applied at the central level and at the state level, and by public sector agencies and enterprises. At the central (federal) level, procurement is regulated through executive directives and administered by the government agencies. The Ministry of Finance's General Financial Rules (GFR) sets out central government general rules and procedures for financial management, procurement of goods and services, and contract management. The GFR also includes a Manual on Policies and Procedures for Purchase of Goods. A number of instructions, issued by the Central Vigilance Commission (the Indian government's oversight body for government employees) supplement these regulations. The individual government agencies also sometimes issue more detailed instructions and their own handbooks, model forms, and model contracts. India does not have an authority responsible for regulating procurement policies and overseeing compliance with the procurement procedures. However, a central purchasing agency, the Directorate General of Supplies and Disposal, and state-level central purchasing organizations enter contracts with registered suppliers for goods and standard items in conformity with the GFR. Sector-specific procurement policies apply in certain areas, such as defense procurement. India's defense “offsets” program requires companies to invest 30 percent or more of the value of contracts above a certain value in Indian produced parts, equipment, or services. These offset requirements are often so onerous that they dissuade foreign companies from bidding.
India's government procurement practices and procedures are not transparent. Foreign firms rarely win Indian government contracts due to the preference afforded to Indian state-owned enterprises in the award of government contracts and the prevalence of such enterprises.
India is not a signatory to the WTO Agreement on Government Procurement (GPA) but obtained "observer" status in the WTO Committee on Government Procurement in February 2010.
Export Subsidies
The tax exemption for profits from export earnings has been completely phased out, but tax holidays continue for export-oriented enterprises and exporters in Special Economic Zones. In addition to these programs, India continues to maintain several duty drawback programs that appear to allow for drawback in excess of duties levied on imported inputs. India also provides pre-shipment and post-shipment export financing to exporters at a preferential rate. India's textile industry enjoys subsidies through modernization schemes, such as the Technology Upgradation Fund Scheme and the Scheme for Integrated Textile Parks. As of 2011, India has not submitted a notification to the WTO Committee on Subsidies and Countervailing Measures since 2001.
There is a special initiative for agricultural exports in India's Foreign Trade Policy 2009-2014, including a scheme called Vishesh Krishi Gram Upaj Yojana (VKGUY or Special Agriculture Produce Scheme), aimed at boosting exports of fruits, vegetables, flowers, some forest products, and related value added products. Under the plan, exports of these items qualify for a duty-free credit that is equivalent to five percent of the product's free-on-board (FOB) export value. The credit is freely transferable and can be used to import a variety of inputs and capital goods. To mitigate the impact of the global economic slowdown on exports, the government has made several additional agricultural products eligible under VKGUY, such as corn, barley, soybean meal, cotton, marine products, and meat and meat products.
Intellectual Property Rights (IPR) Protection
According to a 2009 US Trade Representative report, India needs to improve its IPR regime by providing stronger protection for copyrights, trademarks and patents, as well as effective protection against unfair commercial use of undisclosed test and other data generated to obtain marketing approval for pharmaceutical and agrochemical products. In addition, India has not yet enacted legislation to implement the provisions of the WIPO Internet Treaties. Large-scale copyright piracy, especially in the software, optical media, and publishing industries, continues to be a major problem. While India continues to consider optical disc legislation to combat optical disc piracy, it has not taken steps to introduce such legislation. India's criminal IPR enforcement regime remains weak, especially at the federal level, but enforcement at the state level has improved through enhanced coordination with industry. More police action against those engaged in manufacturing, distributing, or selling pirated and counterfeit goods as well as expeditious judicial dispositions for criminal IPR infringement actions and imposition of deterrent-level sentences, is needed.
Services Barriers
Indian government entities have a strong ownership presence in some major services industries such as banking and insurance, while private firms play a preponderant or exclusive role in a number of rapidly growing parts of the services sector, including the information technology sector, advertising, car rental, and a wide range of business consulting services. While India has submitted initial and revised offers for improved services commitments in the WTO Doha Round, these offers do not remove existing limitations or promise new liberalization in such key sectors as distribution, express delivery, telecommunications, financial services, and the professions.
Insurance
Foreign equity participation in the Indian insurance sector is limited to 26 percent of paid-up capital. India introduced legislation in late 2008 that would allow foreign equity participation to 49 percent and also allow for participation in the market by foreign re-insurers, but the legislation was not passed before Parliament adjourned prior to elections in the first half of 2009. After a new government was formed in May 2009, the Insurance Bill was referred to the Standing Committee on Finance for report preparation but is still awaiting re-introduction to Parliament.
Banking
Entry of foreign banks in the Indian market remains highly constrained. Under India's branch authorization policy, foreign banks are required to submit their internal branch expansion plans on an annual basis, but their ability to expand is severely limited by nontransparent quotas on branch office expansion.
Foreign banks may not own more than five percent of an Indian private bank without approval of the RBI. Total foreign ownership of a private Indian bank cannot exceed 74 percent. In 2005, RBI developed a roadmap that would allow foreign banks to enter into merger and acquisition transactions with any private sector bank in India starting in April 2009. However, the roadmap was not implemented due to coordination problems between the RBI and Ministry of Finance.
Audiovisual and Communications Services
Although India has removed most barriers to the import of motion pictures, U.S. companies have continued to experience difficulty in importing film/video publicity materials and are unable to license movie related merchandise due to royalty remittance restrictions. U.S. companies also continue to face difficulties with a “Downlink Policy” issued by India in 2005. The Downlink Policy applies to international content providers that downlink programming from a satellite into India and requires that they establish a registered office in India or designate a local agent. The government reportedly implemented this rule to ensure greater oversight over programming content. However, U.S. companies note that most other countries (including the United States) do not require a license for the downlinking of programming and that India can control content through its licensed entities (such as cable companies or “Direct-to-Home” (DTH) satellite providers). Companies claim that this policy is overly burdensome, results in a taxable presence in India and should be amended to avoid the taxable presence.
All pay television content providers are required to make their content available to all cable and satellite television system operators. The Telecom Regulatory Authority of India (TRAI) continues to impose price controls on cable television until it determines that other television platforms (e.g., satellite, Internet) are widely adopted. While TRAI has recently opened a public consultation on the pricing of channels carried by DTH platforms, it is not clear if it will also conduct a similar consultation for cable television.
Accounting
Foreign accounting firms can practice in India if their home country provides reciprocity to Indian firms. Only firms established as a partnership may provide financial auditing services, and foreign licensed accountants may not be equity partners in an Indian accounting firm. India also maintains burdensome restrictions on the use of foreign firm names, the number of firm partners, and the number of trainees per partner. Additional restrictions include limits on the number of the banking and insurance sector clients an auditing firm may serve simultaneously as well as the requirement for firms to “rotate off” clients every few years. Finally, there is a lack of independent oversight in the accounting industry. A quality review board established in 2006 is funded with industry money but has yet to carry out any investigations. India's Limited Liability Partnership (LLP) Act, 2008, took effect in March 2009. The law aims to give professionals such as chartered accountants, lawyers, and venture capitalists more flexibility in setting up LLP firms.
Legal Services
Foreign law firms are not authorized to open offices in India. Foreign legal service providers may be engaged as employees or consultants in local law firms, but they cannot sign legal documents, represent clients, or be appointed as partners. India has not made any offers for liberalizing foreign access to the legal services sector at the WTO. In 2009, the Bar Council of India (BCI), the legal governing body in India (membership in BCI is mandatory to practice law in India), passed a resolution confining all discussions regarding legal services to representatives of the American Bar Association (ABA) and members of BCI – and that the ABA should constitute a committee for the purpose of these discussions. This resolution appeared to be a withdrawal of Indian participation from the Working Group on Legal Services established by the two governments. During the October 2009 TPF Services Focus Group discussion, Ministry of Commerce and Industry officials reported no progress on legal services in part due to opposition from BCI.
In December 2009, the Bombay High Court ruled that under existing law – principally, the 1961 Advocates Act and the 1973 Foreign Exchange Regulation Act – foreign law firms may not establish offices in India and that foreign lawyers may not engage in legal practice in India, including corporate advisory and other “non-litigious” activities. The court directed the Indian central government to clarify the scope of work foreign law firms could undertake.
Telecommunications
Despite India's positive steps towards liberalizing and introducing private investment and competition in its telecommunications services market, concerns remain regarding India's weak multilateral commitments in basic and value added telecommunications services. In addition, many pro-competition recommendations of the TRAI have been delayed or rejected by India's Department of Telecommunications (DOT) without adequate explanation.
India's national telecommunications policy allows up to 74 percent foreign participation for wireless and fixed national and international long distance services, but a substantial licensing fee is a deterrent to foreign participation.
India has been working for over a year to formalize its policies for the allocation of wireless spectrum to serve India's rapidly expanding and lucrative wireless telecommunications industry. Spectrum will be auctioned off, but even if spectrum is won at auction, any new companies would need to first obtain a Unified Access Service (UAS) license, which carries a burdensome licensing fee of approximately $360 million. DOT's recently released 3G spectrum auction “Information Memorandum” permits foreign companies to participate in the auction without first obtaining a telecommunications license or securing a joint venture partner. Only those operators that are successful in the upcoming auctions will have to obtain a license and find an Indian partner with which to establish a joint venture (existing regulations restrict foreign holdings to 74 percent and mandate that an Indian entity hold the remaining 26 percent). However, under India's current mergers and acquisition (M&A) policy, a three-year waiting period is required before a license holder can merge with another operator.
The Indian government continues to hold equity in three telecommunications firms: a 26 percent interest in the international carrier, VSNL; a 56 percent stake in MTNL, which primarily serves Delhi and Mumbai; and the 100 percent ownership of BSNL, which provides domestic services throughout the rest of India. These ownership stakes have caused private competitive carriers to express concern about the fairness of India's general telecommunications policies. By way of example, valuable wireless spectrum has been allocated and will be set aside for MTNL and BSNL and not subject to competitive bidding, potentially giving these companies an advantage.
Distribution Services
The retail sector in India is largely closed to foreign investment. In January 2006, the government began allowing FDI in single brand retail stores, subject to a foreign equity cap of 51 percent and government approval and FDI of 100 percent in cash and carry (wholesale) outlets. Multi-brand retail, however, is completely closed to foreign direct investment, even as Indian multi-brand retail outlets are expanding dramatically. Direct selling companies face uncertainty due to periodic government efforts to incorrectly interpret their activities as a violation of the Prize Chits and Money Circulation Schemes (Banning) Act of 1978.
Education
Foreign providers of higher education services face a number of market access barriers, including a requirement that states sit on university governing boards; quotas limiting enrollment; caps on tuition and fees; policies that create the potential for double-taxation; and difficulties repatriating salaries and income from research. The draft Foreign Education Providers Bill may address some of these issues, but it remains under review by Parliament.
Investment Barriers
India's regulations and procedures governing local shareholding are often stringent and nontransparent, inhibiting inbound investment and increasing risk for new market entrants. Attempts by non-Indians to acquire 100 percent ownership of a locally traded company, permissible in principle, face regulatory hurdles that render full ownership unobtainable under current practice. Price control regulations undermine incentives for foreign investors to increase their equity holdings in certain sectors. In the power sector, some companies have reported forced renegotiation of contracts as a result of changes of government at the state and central levels.
Anti-Competitive Practices
In 2009, India took several positive steps toward implementing the Competition Act and making the Competition Commission of India (CCI) operational as an effective deterrent to anticompetitive practices. The government of India appointed a new chairperson and four new members to the CCI, established the Competition Appellate Tribunal, and notified in the Official Gazette the Act's provisions relating to anticompetitive agreements and abuse of dominant position, which are now in effect. The Act's merger provisions have not been notified in the Official Gazette pending CCI efforts to issue revised draft combination regulations. Additionally, the CCI issued other regulations, began to hire staff, and initiated some initial inquiries into alleged anticompetitive acts.
Other Barriers
India has an unwritten policy that favors countertrade (a form of trade in which imports and exports are linked in individual transactions). The Indian Minerals and Metals Trading Corporation is the major countertrade body, although the State Trading Corporation also handles a small amount of countertrade. Private companies also are encouraged to use countertrade. Global tenders usually include a clause stating that, all other factors being equal, preference will be given to companies willing to agree to countertrade.
In June 2008, India enacted export tariffs of 15 percent on all grades of iron ore, pig iron, and ferrous scrap. India revised its exports tariffs again in October and November 2008: the export tariff on pig iron has been revoked, but tariffs on iron ore and ferrous scrap remain in place. In addition, India maintains restrictions on the export of certain high-grade iron ore. These restrictions reduce Indian exports of these inputs, and may reduce supplies on international markets for raw materials used in steel production. The Indian government appears to be using these measures to improve the availability and lower prices of inputs used by India's rapidly growing steel industry. Meanwhile, India announced increased duties on imports of certain steel products in late 2008, and added certain steel items to the list of products requiring mandatory certification. The implementation date for certification of the additional products, was delayed until February 2010 due to concern from India's trading partners. On December 24, 2009, India raised the export duty on two categories of iron ore. Effective immediately, the government has raised export duties on iron ore lumps to 10 percent from five percent and on iron ore fines to five percent from zero.
Note: The above information is subject to change. Importers and exporters are advised to obtain the most current information from a customs broker, freight forwarder, logistics professionals, or local customs authorities.
Source: Central Board of Indirect Taxes and Customs
Article written for World Trade Press by Taylor Holloran.
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