Urjit Patel: ‘Tariff impacting 55% Indian exports to US, need to mitigate pain’

Excerpts from the interview:

Indian products are now facing 50 per cent US tariffs. What do you make of the situation and how should the government approach this challenge?

The government seems to be very active. They need to help the sectors that are most exposed. About 55 per cent of our exports to the US at the moment are facing punitive tariffs, and these are the sectors where the pain needs to be mitigated. Then it has to be seen what can be done subsequently in terms of finding new markets, etc. Because at the end of the day, globally, the US accounts for 13 per cent of world trade, but 87 per cent of global trade is carrying on as before, so there is scope for trade deepening.

I am not trying to underplay the importance of what has happened, but there are things that are carrying on in the rest of the world, and we see that evidence all the time. For example, our FTA with the UK happened almost simultaneously. And other countries are also trading normally. We just need to mitigate the pain and then see the other opportunities. It may take some time. If you see the goods that are most affected, they are consumer goods, where there is a large international market. We have to wait a little and see what kind of package is rolled out.

What do you make of the analysis that India’s savings from buying cheaper Russian oil is lower than what we stand to gain via exports in the US market? The government has said this is a matter of sovereign choice in the nation’s interest. What is your take?

The most important issue here is that any country, whether it is us or someone else, should buy whatever it wants to from whomever it wants to, at whatever price it wants to – and that is an extremely important principle. I haven’t seen any credible calculations on the so-called analysis that you mention on this, because I don’t think it is a simple static comparative exercise. The positive benefit to our balance of payments on account of this is huge. If we were to go into the open market, oil price increases would impact our balance of payments quite significantly. So, I think that calculation has to be done carefully. It’s not a question of a one-time couple of billions here and there. It is substantially more. It’s a counterfactual exercise that needs to be done carefully, and then you have to make the comparisons.

There are still a number of countries that purchase Russian energy. Whether you are purchasing oil or LNG doesn’t matter – it’s still hydrocarbons coming from a large exporter of these products. And Russia has continued to sell oil under the G7’s oil price cap since 2022. Also, India’s exports of petroleum products like diesel and jet fuel to the US continue to be exempt from the levy, to the best of my knowledge.

A very significant cost around the tariffs overall – whether in the form of secondary sanctions or retaliatory tariffs – is that investment uncertainty has become very high. It’s not only that the tariffs are high, but the scope for abrupt changes in these tariffs is also there, as we have noticed over the last six months. I think the effect of all this on investment, on account of the uncertainties, is a significant cost to the global economy, and not only to the countries directly affected. That is why some are saying that the world has shifted from a “China plus one” to a “China plus wait” phase…

What is your take on these sanctions that have been historically seen as a tool for large powers such as the US to further political goals?

What is disappointing here is that multilateral institutions have not been fully cognisant and transparent that sanctions, secondary sanctions, counter-sanctions, counter-measures, are a substantial source of economic instability. They not only affect the countries directly, but the spillovers are immense – and this has been the case for a while. This not only needs to be acknowledged, but we need precise estimates of these spillovers from each of these separately. You know, a war has a direct cost. But sanctions and counter-sanctions also do, and we need granular estimates of how much they cost each country. Dozens of countries have been affected. Institutions and entities whose job is to look at spillovers themselves have not done this seriously enough.

I think the whole business of sanctions and secondary sanctions as a source of economic instability is something very serious. The issue of spillovers is not only about fiscal and monetary policy. A lot more needs to be done – bringing in transparency about the cost of this instability in a granular manner would do a lot to inform policy making and policy advice.

It’s not just a question of geopolitics. It’s a fundamental source of economic uncertainty and instability for the global economy. In fact, that has been one of the valid reasons why India has been legally allowed to buy Russian oil – so as to mitigate economic instability and the spike in oil prices, if we were to buy in the open market as the world’s third largest oil importer.

What merit do you see in India’s association with BRICS at this time? How risky can it be given the US warnings to India?

The BRICS grouping has been around for a very long time now, and the New Development Bank (NDB) has been an important component of BRICS. And now BRICS is not just five countries — six other countries have joined. I think it is a more inclusive and growing group. It was never formed to be a counterpoint to anything. It was just a new institution set up for the mutual interests of some of the leading emerging markets at the time.

Entities like the NDB, the AIIB, and also the Contingent Reserve Arrangement amongst the BRICS, are high forms of risk mitigants to anything. It doesn’t have to be because of the economic policies of any one other country outside BRICS. I think it’s an inclusive group, and it has moved beyond the five.

Climate financing and climate regulations by Western countries have been flashpoints between developing and developed nations. Your thoughts?

The fact of the matter is that it’s mainly the developed countries who are consuming the high carbon intensity products. Look at data on per-capita emissions as well. And the interesting thing is that the Carbon Border Adjustment Mechanism (CBAM) will, I am sure, not be imposed by the EU on the US. They have just had a trade agreement where tariffs, investment and market access have been determined, and the CBAM is supposed to come into effect on 1 January 2026. I am sure not all countries are going to agree to CBAM, and if the EU gives carve-outs to the world’s largest economy, it remains to be seen what will be done.

But the precedent – the words I was looking for – is that the US has basically driven a truck through CBAM. I think this should actually be used as a benefit for everyone else, especially the emerging markets which were being targeted by CBAM, which is a non-tariff barrier to trade. Period.