Let’s get the bad news out of the way. Yes, Trump’s tariffs will hurt. At 50 per cent import duty plus penalty on many Indian goods, it’s one of the highest and will hurt India’s GDP, growth and thousands of jobs. It could also have a trickle-down effect on spending when job losses accumulate.
The government, for the time being, is focused on boosting domestic growth, aiming to cut down tax and simplify GST slabs, which, it hopes, will spur citizens to spend and thus balance out the drop in export revenue. The RBI has declared it will monitor the situation and will jump in with interest rate cuts if needed, while a policy prop up of seriously affected sectors, like textiles, for example, is very much on the table.
But having said that, let’s take a barely-looked-at side at the present American notification. Maybe, just maybe, things aren’t as bad as they may actually seem.
For all the once dreamy proclamations, in better times of India-US relations, you know those abki baar and Howdy Modi days, of hitting half a trillion in trade by the end of this decade, the actual exports from India to the US presently are only $86 billion.
Not a big figure, but for good or for worse, India’s massive domestic market has always meant that businesses have always focused more on the local market rather than selling goods abroad, with stricter quality checks. That meant our exports have not been big, particularly on the goods and merchandise side, compared to services like IT.
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But this $86 billion itself, along with our much lesser imports from the US and the real reason why the US President went on the Tariff tirade in the first place, together do make the US India’s biggest trading partner, now for the fourth year in a row.
But there is a bright side to all this. The 50 per cent tariff is set to affect about half of India’s goods exports to the US. Textiles, gems and jewellery will be some of the worst affected.
That means, nearly half of India’s goods exports still aren’t affected. According to estimates, nearly 2.3 crore iPhones were exported from India to the US in just the first half of this year. Semiconductors, too, are exempted.
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Perhaps most importantly, Trump’s tariffs have not yet touched two crucial areas—pharmaceutical drugs, as well as the services sector. Both are areas where India excels, be it the fact that 35 per cent of generic drugs in the US come from India. Services have been out of the tariff terror so far, and just as well, because India is a powerhouse in this area with its big presence in IT services, BPO, communications and travel services.
Of course, the US President has commented more than once that he wouldn’t desist slapping sky-high tariffs on pharma imports, but that is a bullet even he is unlikely to bite, considering that it will eventually mean prices of ordinary medicines shooting up for US citizens themselves.
The government, meanwhile, is looking at alternatives, including seeing if Indian products can replace the vacuum in Russian consumer space left by western boycott over the Ukraine war, sewing up new trade deals—the one with the European Union is in advanced stages with the next round scheduled for next month, as well as alternate markets.
And never forget, in the world of diplomacy, negotiations are forever going on, so who knows, a trade rapprochement with the Yankees could still materialise, once the dust settles, the muscle flexing and chest thumping is done, and reality sets in. Don’t forget, just last night, both India and the US did conduct their 2+2 intersessional dialogues. And though the focus was on strategic affairs, the topics covered included trade and investment.
