India’s trade needs more precise HSN codes

As we enter an unpredictable, disruptive, transactional, and bargaining global trade regime, it is time to revisit all policies — trade, tariff, and non-tariff — to engage, track, give and take, and even retaliate to protect our economic interests.

Given this context, India must realign its existing 8-digit Harmonized System of Nomenclature (HSN) to a 10-digit structure, aligning with developed countries and enhancing policymakers’ ability to respond strategically in the evolving “zero for zero” tariff negotiations.

As WCO has already drafted the 2027 HSN, updating the 2022 version to evolving geo-economic realities, it is high time for India to revisit it. Moreover, with an ambitious $2 trillion export target by 2030, this transition is not just necessary but mandatory. Given this context, let us comprehend the need of 10-digit HSN for India in the unfolding global trade order.

Ten-Digit HSN

A 10-digit HSN system is crucial for enhancing trade transparency, governance, and sustainability. It ensures precise classification, avoiding misclassification and enabling accurate tariff application, facilitating smoother trade negotiations and preferential market access. Aligning with WTO standards, this system strengthens Brand India and streamlines customs clearance.

More specifically, India’s existing 8-digit nomenclature lacks precision in capturing product details, for instance, classifying organic and geographically indicated (GI) products trade, limiting effective policy interventions for sustainable growth and development.

A 10-digit HSN will allow classification by crop type and producing area, improving trade tracking, enabling targeted incentives, and ensuring compliance with global standards. As organic exports grow, refined classification will drive sustainability and simultaneously strengthen India’s global market position in agricultural trade.

Similarly, India’s classification system for Geographical Indication (GI)-tagged and Genetically Modified (GM) products lacks a standardized numerical structure, leading to inconsistencies in trade, taxation, and regulatory compliance.

A 10-digit HSN can classify GI products by sector (agriculture, handicrafts, textiles, and food), region, and uniqueness, ensuring better traceability, preventing counterfeiting, and strengthening India’s global branding. Improved traceability will enhance e-commerce authentication and integrate with block-chain for supply chain integrity, reinforcing consumer confidence and regulatory compliance in GM products. An extended HSN will also facilitate precise classification of India’s heritage products like Desi Ghee, Kanjeevaram Silk Sarees, Channapatna Toys, Gur, Desi Khand, and ethnic crafts. This will prevent misclassification, strengthen India’s cultural and artisanal legacy, and boost exports under the One-District-One-Product (ODOP) scheme.

Moreover, as India prepares to comply with EU Deforestation Regulations, a globally aligned HSN system will reduce misunderstanding in issuance of ‘transaction certificate’ of produce, ensuring better compliance to EU regulations. Similarly, it will enable Indian exporters to exactly classify their products thus pricing and promoting them effectively in global markets. It will also reduce the invoice mismatching which occasionally obstructs the orderly commercial engagements of Indian exporting firms.

Additionally, a 10-digit HSN will enhance tax collection and reduce evasion by precisely classifying luxury goods, high-end watches, premium cosmetics, designer apparel, automobiles, and electronics. This granular classification will prevent mis-declaration in GST and Customs duty collections, improving trade tracking, policy planning, and tariff application, thereby bolstering India’s economic competitiveness.

Aligning HSN with global standards will enable India to negotiate better preferential tariffs and boost exports, preserving traditional industries like handlooms, handicrafts, and organic produce. This will reinforce India’s position in the transactional, resolute, and unpredictable trade policy regime.

Out-of-Syllabus Policy

As India prepares for an “out-of-syllabus” (OOS) trade policy regime, a 10-digit HSN will help anchor trade, tariff, and non-tariff policy instruments effectively. Consider how India’s rice export policy became cluttered post-Russia-Ukraine conflict, responding to speculative tendencies arising from global food trade disruptions.

Policymakers struggled to balance trade instruments such as minimum export prices (basmati), export duties (parboiled rice), export licensing (de-husked rice), and export quotas (non-basmati rice), while failing to prevent rice exports in the garb of broken rice.

Similarly, Indian Customs and GST officials face challenges in correctly classifying luxury goods and diverse automobile segments — gasoline, diesel, PNG, LNG, hybrid, EV, hydrogen, and ultra-hybrid variants.

A 10-digit HSN will help tax authorities optimise revenue sources, rationalise tax rates, and maintain consumer welfare as a central taxation principle. Regulatory agencies will also benefit from improved policy execution and control over luxury imports, expensive accessories and premium consumables and electronics by classifying them based on value, brand, and end use, ensuring progressive taxation principles.

A 10-digit HSN will also enable India to negotiate “zero-for-zero” tariff trade deals or sectoral FTAs with key trading partners, including the US, EU, UK, and Israel. Given India’s constraints in lengthy trade negotiations under proposed FTA talks spanning decades, an extended nomenclature will help policymakers manage sectoral vulnerabilities more effectively.

Moreover, non-tariff measures can be leveraged more effectively in response to escalating imports of steel, electronics, semiconductors, chemicals, lead, and other metallurgical products. Standards and compliance agencies under the Single Window Interface for Facilitation of Trade (SWIFT), such as FSSAI, BIS, PQ, and ARAI, will be better equipped to restrict imports, promote domestic manufacturing, and accelerate the Make-in-India mission.

India can strategically deploy trade policy instruments — minimum reference prices, duties, quotas, trade licensing, and export compliance rules — alongside tariff measures like MFN duties and preferences to navigate the evolving trade-tariff-tech war(s).

More critically, leveraging non-tariff instruments, including SPS, TBT, and trade-related measures, will be essential in countering the dumping tendencies which are affecting our key classical and other upstream and downstream industries. In the unpredictable trade regime shaped by Trump’s policies, Indian policymakers must revisit trade nomenclature, aligning it to 10 digits for sustainable trade engagement in disruptive times.

By balancing regulatory controls in the garb of non-tariff instruments along with strategic market access, India can strengthen its global trade position amid shifting geopolitical and economic realities in the unfolding global order.

Ram is Professor and Head, IIFT, New Delhi, and Areej is Assistant Professor, Dubai University