India, Dec. 30 -- Finance minister Nirmala Sitharaman recently said that customs reforms will be her major priority in next year's budget. This is excellent news for the economy. Customs reforms, some of which were initiated in the 2025 Budget, are indispensable for India to facilitate the ease of doing business and realise its full economic potential. Customs reforms could take many forms, such as simplifying tariff structures, easing procedural bottlenecks, streamlining processes, and augmenting physical, digital, and human infrastructure at ports to facilitate the smooth transit of goods. A key dimension of customs reforms is its intrinsic link to the signing of free trade agreements (FTAs). After a hiatus of a few years, India began signing FTAs from 2020 onward. In the last five years, India has inked numerous FTAs with prominent countries such as the UAE, Australia, and the UK. FTAs with other key countries/blocs, such as the EU, and a trade agreement with the US are in the works. These FTAs not only obligate India to lower its customs duties but also offer a splendid opportunity for Indian manufacturers to augment their exports. Boosting the competitiveness of Indian goods requires the country to pursue domestic reforms, including in its customs structures, tenaciously. Imports are critical for exports. Before examining the reforms needed, it is compelling to enunciate that customs duties, in themselves, are not inherently problematic, as is often claimed. Under the law of the World Trade Organization (WTO), unlike quantitative restrictions, countries are not prohibited from imposing customs duties on imports, as these are an inseparable element of State sovereignty. As the WTO's Appellate Body held in a case (India-Additional Import Duties) in 2008, "tariffs are legitimate instruments to accomplish certain trade policy or other objectives such as to generate fiscal revenue". Of course, there are limits on the exercise of this sovereign power imposed by WTO law and FTA obligations. The question is: Within these limits, how should countries exercise this sovereign choice that reflects their national needs? An essential aspect of customs reforms is related to correcting the inverted duty structure. As India undertakes obligations under various FTAs to reduce tariffs, this often results in import duties on finished products being lower than those on raw materials or input goods. So, if the tariff rate on tyres (a finished product) is 5% and on raw rubber (an input good) is 10%, it will disincentivise tyre production in India. Thus, addressing this conundrum is critical to enhancing the competitiveness of the Indian industry, and enabling it to tap low-cost foreign suppliers for intermediary goods. It will also help India attract export-related FDI and become part of global supply chains. A key aspect in reforming the inverted duty structure is rationalising customs duties. The 2025 Budget took valuable steps in that direction, but more needs to be done. A tariff overhaul and rationalisation are also required, given India's commitments under multiple FTAs. Another key aspect of customs reforms and India's FTAs is the need for clear, predictable rules of origin. Rules of origin serve a cardinal function in the international trade landscape dotted by multiple FTAs. They ensure that only products originating in an FTA partner country receive a concessional rate. In other words, Chinese goods entering India via Singapore (with which India has an FTA) should not receive preferential tariff treatment. India amended its customs rules to move away from requiring importers to produce a certificate of origin to proof of origin. While this move will ensure that non-FTA-partner countries such as China are excluded from enjoying preferential FTA tariffs when accessing the Indian market, it may also impose an onerous compliance burden on genuine importers. This could deter trade under concessional rates, thereby undermining the objectives of India's FTAs. Thus, an impeccable customs reform strategy for the rules of origin requires India to walk a tightrope adroitly. Customs reforms must be accompanied by a comprehensive overhaul of non-tariff measures. Take Quality Control Orders (QCOs) - a non-tariff barrier falling under the WTO's Technical Barriers to Trade (TBT) agreement - as an example. While QCOs have a laudable objective of ensuring that poor quality products are kept out of the Indian market, several economists, such as Arvind Subramanian, argue that QCOs have become protectionist tools. They may discourage imports of intermediate goods that could benefit Indian producers. The impact of QCOs on man-made fibres - an intermediary product in the textile supply chain - is a case in point. Subramanian et al have demonstrated that imposing QCOs on man-made fibres, such as polyester yarn and viscose staple fibre, led to their imports falling despite a tariff cut, thereby hurting exports of apparel made from man-made fibres. This also indicates that the indiscriminate imposition of non-tariff barriers, such as QCOs, may reverse gains from customs reforms aimed at addressing the inverted duty structure. Thus, the reform-in-silos approach is subject to diminishing returns. Moreover, WTO members have raised concerns about QCOs, citing a lack of transparency and non-harmonisation with international standards. The Union government's recent steps to simplify the QCO processincluding rescinding it for several raw materials is a welcome regulatory reset. Political-economy reforms, such as overhauling the customs system and related areas, are not easy. The government must strike a balance while managing stakeholder diversity. Nonetheless, not undertaking these reforms would be inexpiable. India needs intrepid economic reforms to boost competitiveness and maximise the opportunities the FTAs offer. This, in turn, will play a critical role in raising incomes and generating jobs....