India’s finance minister Arun Jaitley is calling for a lower tariff regime to cut down on trade-based financial crime and evasion of duties and taxes.

The minister believes that high tariffs motivate trade-based money laundering (TBML) and are responsible for some of the large TBML cases detected by agencies such as India’s Directorate of Revenue Intelligence (DRI).

Motivating evasion

“For decades we were a regulated economy. We had very high tariffs. The higher the tariff, [the higher] the level of evasion,” Jaitley told an audience at the DRI’s 61st Foundation Day celebrations.

The minister added that he was particularly concerned about TBML as well as smuggling in the gold trade.

Competitive disadvantage

Higher tariffs “take away competitiveness” and ultimately damage the domestic economy the minister says.

Lower import duties however would create conditions for high growth in trade and investment and help the economy in several ways according to Jaitley.

Value chain participation

One benefit of lowering import duties he argues would be that India would be better positioned to participate in global value chains that can involve components crossing borders several times before finished goods are produced.

Products manufactured in global value chains account for two-thirds of world trade, but India’s share is meagre Jaitley concluded.