India has been witnessing a sharp rise in merchandise trade and showing greater trade interdependence on a large variety of intermediate and capital goods. However, higher transportation costs continue to impede Indiaís trade. Costlier transportation prohibits trade in India and taxes the trade in the way tariff does. This paper provides sufficient evidence to ascertain that variations in ad-valorem transportation costs strongly influence trade flows in India. Another conclusion is that transportation cost is relatively more important than tariff in enhancing Indiaís merchandise trade, ceteris paribus. Reduction in transportation costs should therefore get utmost priority while formulating policy for Indiaís infrastructure development and trade facilitation since the fall in transportation costs, as an outcome of improved infrastructure, will stimulate trade.