Days after US President Donald Trump announced a 25 per cent tariff on Indian imports, and an unspecified penalty for defence and energy imports from Russia, the Indian government has initiated an exercise to thrash out concessions across sectors that can be put forth in trade talks between the two countries. As reported in this paper, key ministries have been directed to examine what can be offered to make the deal more attractive to Trump, with the US said to be pushing for greater market access than what has been on the table so far, bringing down tariff walls and doing away with non-tariff barriers. Another round of talks is slated to be held in the last week of August.
There will be red lines, of course. The government, for instance, is reluctant to give concessions on some agri items, even as it must negotiate to increase market access to the world’s largest economy — in 2024-25, India exported goods worth roughly $87 billion to the US, led by electronics (17.6 per cent of exports), pharma (11.8 per cent) and gems and jewellery (11.5 per cent). The imposition of higher tariffs on the country as compared to those levied on its competitors such as Vietnam and Indonesia will impact export competitiveness and have implications for the broader economic momentum. Assessments by various agencies have provided some sense of the possible impact on the Indian economy — ICRA, for instance, has lowered its GDP growth forecast for the year to 6 per cent from 6.2 per cent earlier, while CareEdge Ratings has estimated the direct export loss to be around 0.3 to 0.4 per cent of GDP. Some of the options before the government reportedly involve increasing purchases of defence equipment and oil, and greater nuclear engagement, among others. Indian refiners have already cut down on oil imports from Russia to 1.6 million barrels per day in July, down 24 per cent from the month before. This decline has been offset by higher imports from countries such as Saudi Arabia, the UAE, the US and Nigeria. Concessions to the US could also be granted in areas of public procurement — in line with the India-UK trade agreement.
Delhi’s sober response, in the face of Trump’s broadside — the US President has called India a “dead economy” — reflects pragmatism when faced with pressure tactics designed to extract concessions. But, in a changed global order, where Trump is undoing the rules that underpinned the global trading system, a business-as-usual approach is unlikely to work. India should continue to sidestep the loose rhetoric, while moving ahead with negotiations to conclude a deal that delivers benefits to both sides. Alongside, it should press forward the domestic reform agenda to boost competitiveness, improve ease of doing business, and increase the attractiveness of the country as an investment destination.
