India needs a Tariff mechanism

Finance Minister Nirmala Sitharaman announced a tariff reduction for high-end motorcycles  (800 cc and above) after Trump assuming office.

While Harley-Davidson wasn’t mentioned by name in the Budget 2025-26—since tariffs are categorised generally—this move was clearly aligned with the long-standing US demand to lower trade barriers for US-made products.

Import duties were reduced to 40 per cent for bikes up to 1600cc and 30 per cent for those above 1600cc. 

For completely knocked down (CKD) units, the duty dropped from 15 per cent to 10 per cent, while for semi-knocked down (SKD) units, the duty is now 20 per cent instead of 25 per cent. 

The ‘mango deal’ of  2007

India gave market access to bikes over 800 cc, while the US lifted its mango import ban. Harley-Davidson entered the market in 2010, selling fully built imports with a tariff of  100 per cent, which was later reduced to 50 per cent in 2018.  

With the onset of Covid, demand plummeted, and by September 2020, Harley-Davidson halted manufacturing and sale of Street 750(Indian variant manufactured in Haryana) entirely. 

Tariffs commission

Unlike the long-drawn consultation process once followed by the Tariff Commission—before it was wound up in May 2022—decisions now seem more like executive instructions from the PMO and/or the Finance Minister’s office.

The work of the former Commission is now handled by the Tariff Policy Research Unit under the Board of Indirect Taxes (Customs & Central  Excise).

Way forward

The point here is the need for a transparent, institutional mechanism to look at both the short and long-term implications of tariffs.

A nation must consider not just the balance of trade but also the protection of domestic manufacturing.

Conflicts of interest are highly likely—consumers want the cheapest options and producers seek to secure their market.

History of the Tariff Commission

The creation of the first tariff board in India under the Empire’s rule, legislation creating the Tariff Commission, formation of the Bureau of Industrial Costs and Prices (BICP) along the lines of Commission for Agricultural Costs (CACP), their eventual merger, reports of the Administrative Reforms Commission (ARC), the political economy post-1991, and finally, the decision to abolish the Board in 2022. 

The exports of manufactured goods from India grew from 23 per cent in the pre-World War I years to 32 per cent by the war’s end.  

First Indian Fiscal Commission appointed in 1921. Its mandate was to safeguard the interest of India’s nascent industries, which had received a fillip on account of World War I.

The intent of the first Tariff Act of 1894 to impose a 5 per cent ad valorem duty on all foreign goods was to increase revenue.  It was raised to 7.5 per cent in the war years, and with deficit budgets from 1919 to 1922, customs duties were raised to 15 per cent, contributing 34 per cent of the Union government’s budget. 

The Commission believed that the state could support domestic industries by abolishing  ‘unjust’ inland duties, and imposing duties on foreign goods to help compete in the open market.

The establishment of the first Tariff Board in 1923, under the chairmanship of G Rainy of the Indian Civil Service (ICS). Its first report was titled ‘Grant of Protection to the Steel Industry’.

The next phase of the tariff board emerged during World War II. Ramaswamy Muralidhar, then Commerce Member of government, assured that industries developed during the war, either at the instance of the government or to meet civilian needs, would not be left ‘high and dry’ and would be ‘protected against unfair competition’. 

The first post-Independence Tariff Board was established under the chairmanship of VT Krishnamachari of the ICS. He was later inducted by Nehru into the Planning Commission and served as a member of the Rajya Sabha from 1961 to 1964.

With the passage of the Tariff Commission Act of 1951, the Board was redesignated as a commission. 

In 1968, the ARC led by Hanumanthaiah recommended replacing the existing Commission with one focused on prices, costs and tariffs.

And from 1976, the tasks were inherited by the BICP to ‘advise the government on a continuous basis on industrial costs and prices and on issues relevant to cost reduction, industrial efficiency and pricing of industrial products.

Starting with its report on coal prices in 1971, the BICP  brought out 861 reports until 1999. 

With economic liberation making its functions less relevant, the BICP was merged with the Second Tariff Commission under  Vijay Kelkar. This commission penned it's last report in May, 2022.

The Expenditure Reforms Commission (ERC) of 2001, headed by KP Geethakrishnan, felt that the work of the Commission was relevant, but highlighted several challenges—lack of autonomy, restrictive terms of reference, lack of in-house expertise, lack of ownership by the stakeholder departments and absence of an institutional mechanism for stakeholder engagement. 

The second part of ERC’s suggestion—that a new commission with greater clarity be established—is yet to see the light of the day.  Print