Current Edge Daily Brief 15th September 2025

IE Explained: Rationalise tariffs, independent of US pressure, and raise productivity

Syllabus: Pre/Mains – International Relations, Economy

Why in News?

India is under pressure from the US for having high tariffs, especially on agricultural goods, being labelled “tariff king / tariff maharaja”—sparking debate over reform.

India’s Tariff Profile Compared Globally

• Among G20, India has high simple average tariff (~16.2%) and very high trade-weighted average tariff (~12%) on all goods.
• For agriculture: trade-weighted tariff ~64.3%, simple average ~36.7%, much above US (~4-5%) and EU/China.
• For non-agriculture: India ~9.2% (trade-weighted), less extreme but still high relative to major trading partners.

Examples of Irrational / Uneven Tariffs

• Edible oils (≈ one-third of agri-imports) get only ~10% duty.
• Cotton, yellow peas: negligible tariffs.
• Almonds <15%, whereas walnuts & chicken legs >100%.
• Apples ~50%, blueberries ~30%, skimmed milk powder ~60%.
• Food preparations (e.g. soft drink concentrates, custard powder, lactose syrup) ~150%.
• Rice imposes ~70% duty despite India being the world’s largest exporter of rice.

Agri vs Industry: India’s agricultural imports face a much steeper tariff curve than industrial goods. Over 8 percent of farm products attract tariffs between 50–100 percent, compared to just 0.4 percent for non-agri items. Here’s how India’s trade barriers stack up.

Proposed Reforms & Recommendations

• Rationalise tariff structure independent of US pressure:
  • Cap duties: raw materials at 0-10%; non-sensitive goods 10-20%; sensitive goods 20-35%; luxury items 35-50%, no duty to exceed 50%.
  • Use tariff rate quotas (TRQs) for sensitive agricultural goods to protect farmers while allowing some imports.
• Raise domestic productivity:
  • Double agricultural R&D to at least 1% of agri-GDP.
  • Focus on precision agriculture.
  • Rationalise fertiliser subsidy via direct benefit transfer (DBT); free up fertiliser pricing.
• Strengthen value chains: enhance efficiency in post-harvest, logistics, “farm to fork” movement.

Key Trade-Offs & Justifications

• Agriculture protection is high due to large share of workforce (≈ 46%) in agriculture, small farm sizes (~1 hectare), food security concerns.
• But excessive protection hurts competitiveness, trade negotiations, invites retaliation.
• Imports can be part of growth strategy: comparative advantage, not just shield domestic producers

Test Your Knowledge 01

Q1. In the context of tariff policies, “tariff rate quotas (TRQs)” are best understood as:

(a) A system where tariffs are imposed only on luxury goods, not on essential goods.
(b) A mechanism that allows a specified quantity of a commodity to be imported at lower duty, with higher duty imposed on imports beyond that quantity.
(c) A WTO provision under which developed countries can unilaterally impose duties on agricultural imports.
(d) A subsidy scheme for exporters to neutralize the effect of import tariffs.

Hint :TRQs combine both quota and tariff features—lower duty up to a limit, higher duty beyond it.