India agrees to cut import duty to 5-10% on some processed food items

Although the duty reduction stems from negotiations between India and the US, the tariff cut will apply to all countries in line with WTO rules

India has agreed to bring down the import duty to 5-10 per cent on some fresh and processed food items as part of a larger dispute settlement between New Delhi and Washington at the World Trade Organization (WTO). 

The duties will be reduced on import of frozen turkey, frozen duck, fresh/frozen/dried/processed blueberries, and cranberries. Currently, these items attract import duty of around 30-45 per cent. 

“The duty reduction is on MFN (most favoured nation) basis,” government officials said. So, while the duty reduction is a result of the negotiations between India and the US, the tariff cut will be applicable to all WTO member nations, according to the WTO’s MFN principle. 

The announcement was made by the United States Trade Representative (USTR), on the sidelines of the G20 Leaders’ Summit in New Delhi, after the bilateral meeting between Prime Minister Narendra Modi and US President Joe Biden on Friday.

While the product-specific import duty reduction is yet to be announced, people aware of the matter said that the finance ministry’s revenue department will notify the duty cut in less than six months. “There’s time up to 180 days …Customs will decide the appropriate time,” a person aware of the matter told Business Standard.

The announcement came as part of the seventh trade dispute between the two nations at the WTO over poultry imports from Washington. The development came less than three months after Modi’s visit to the US in June when both countries decided to square off and close six of seven outstanding disputes at the WTO. India, in 2015, had lost a long-standing dispute over poultry imports–mainly chicken legs – from the US.

Rationale and impact

The rationale behind agreeing to the tariff cuts is that not only the dispute that India lost at various stages at the WTO is laid off, but that the US can get some market access to items that are not very popular in India, said the person cited above. “This (tariff cut) is unlikely to hurt the domestic market. It is an exclusive market that caters to a limited segment that wants to buy international products. It will be the consumers' choice”.

For instance, India is not a major producer of blueberry and depends on import of the fruit to meet its local needs. The US, on the other hand, is the largest producer of blueberries in the world and has been trying to tap the Indian market. In the past, US-based farmers and exporters’ body US Highbush Blueberry Council had said that it had been working with importers and trade associations in India to help reduce the 30 per cent import duty.

Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations, said that import duty reduction of such products will be good for hotels, food processors, and consumers. These items at the moment are niche products and cater to high and middle-income consumers and the hospitality sector.

“Besides, the channels through which the products enter the Indian market could be through organised retail or hotel chains, and not through unorganised retail partners. As a result, despite the duty cut, the access of the product for the consumer may not substantially increase and the final price depends on retailer margins,” Mukherjee said.

“Gradually, India will have to reduce high tariff on agricultural/food items to facilitate agricultural trade, especially when the country is trying to ink more free trade agreements,” she added.

The US is India’s largest export market, with outbound exports at $78.5 billion in the financial year ended March 31, 2023. It is also the third largest import partner, after China and the United Arab Emirates, with inbound shipments amounting to $50.24 billion during the last financial year.

CONTOURS OF the move
 

-- Tariff cut on some processed and fresh food items, such as turkey, blueberries, cranberries, duck

-- Import duty on such items usually hovers around 30-45 per cent

-- Tariff cut of 5-10 per cent depends on food item

-- Move is part of the larger dispute settlement between India-US at the WTO over India’s poultry import curbs, mainly of chicken legs