INDIA AND THE NEW ERA OF TARIFFS

The global economic landscape is constantly shifting, often swayed by geopolitical winds and national interests. In recent times, India, a rising economic powerhouse and a crucial player in the Indo Pacific, has found itself at the epicenter of a significant trade challenge: the imposition of substantial new tariffs by the United States. Far from a mere economic squabble, these tariffs represent a complex interplay of trade imbalances, energy security, and evolving geopolitical alignments. For a nation like India, deeply integrated into global supply chains yet fiercely protective of its strategic autonomy, navigating this new era of tariffs is a critical test of its economic resilience and diplomatic prowess.

THE SPARK: WHY TARIFFS NOW?

The immediate catalyst for the latest round of US tariffs on India has been explicitly linked to India’s continued purchase of discounted Russian oil. Following Russia’s full-scale invasion of Ukraine, Western nations, including the US, imposed sanctions on Russian energy exports. However, India, prioritizing its energy security and economic stability, significantly increased its imports of Russian crude, taking advantage of attractive discounts. This move, while economically pragmatic for India, has been viewed by the US as indirectly supporting Russia’s war efforts.

US President Donald Trump’s administration has been vocal about its disapproval, culminating in an executive order that initially imposed an additional 25% tariff on Indian goods, on top of an existing 25% levy, bringing the total duty to a staggering 50% on many Indian imports. This makes India one of the most heavily taxed US trading partners, on par with Brazil, and significantly higher than competitors like Bangladesh (35%), Vietnam (20%), and China (30%). The US argues that these tariffs are a punitive measure to pressure India to align more closely with Western sanctions and to address what it perceives as longstanding trade imbalances and high Indian tariffs on American goods. Trump has frequently referred to India as a “tariff king,” citing India’s historical protectionist policies in certain sectors.

India’s response has been swift and firm. New Delhi has called the tariffs “unfair, unjustified, and unreasonable,” accusing the US of double standards, given that other nations, including some Western allies, continue to engage in trade with Russia for various critical goods. Indian officials emphasize that their energy procurement decisions are driven by national interest and the need to ensure affordable energy for its 1.4 billion people. Prime Minister Narendra Modi, without directly naming the US, has publicly stated India’s unwavering commitment to protecting the interests of its farmers, dairy farmers, and fishermen, areas where the US has sought greater market access. This stance underscores the political sensitivity of agricultural concessions in India, a nation where a significant portion of the population relies on farming for livelihood.

INDIA’S RESPONSE: RESILIENCE AND STRATEGIC DIVERSIFICATION

In the face of these challenges, India’s government has adopted a multi-pronged approach, combining diplomatic engagement with strategic domestic and international measures.

Diplomatically, India has maintained that bilateral trade negotiations with the US are ongoing and that solutions can be found through mutual dialogue. Senior Indian diplomats have expressed confidence that the current phase is temporary and that both sides were “very close to a solution” before the tariff hike was announced. India has consistently emphasized its commitment to a mutually beneficial partnership with the US, despite the current tensions.

Domestically, the Indian government is reportedly preparing a ₹20,000 crore approximately $2.4 billion USD) export promotion mission. This comprehensive initiative aims to protect exporters from global trade uncertainties by focusing on:
— Trade Finance: Ensuring accessible credit for exporters.
— Non-Trade Finance: Addressing regulatory hurdles, standards, and market access issues.
— Brand India Promotion: Enhancing the global recall and reputation of Indian products.
— E-commerce Hubs and Warehousing: Facilitating smoother logistics for exports.
Trade Facilitation: Streamlining customs procedures and accelerating Goods and Services Tax (GST) refunds for exporters.

Furthermore, industry leaders have called for measures such as expanding the Remission of Duties and Taxes on Exported Products (RoDTEP) and Rebate of State and Central Taxes and Levies (RoSCTL) schemes to cover a wider range of embedded taxes and duties. This would reduce overall production costs for exporters, making their products more price-competitive internationally and partially offsetting the tariff burden.
Strategically, India is also looking to diversify its export markets. Officials have indicated a renewed focus on countries with which India has recently signed Free Trade Agreements (FTAs), such as the UK, and exploring new opportunities in regions like the European Union, the Middle East, Latin America, and Africa. This proactive search for alternative markets is a natural response when faced with “tariff walls” in a major trading partner. India’s emphasis on increasing its indigenous production capabilities and promoting “Atmanirbhar Bharat” (self- reliant India) also plays a role in its long-term strategy to mitigate external shocks.

GEOPOLITICAL UNDERCURRENTS: BEYOND TRADE

The current trade friction between the US and India is not solely an economic issue; it is deeply intertwined with broader geopolitical dynamics. The US and India have spent two decades building a strategic partnership, particularly to counter China’s growing influence in the Indo Pacific region. India is a key member of the Quad alliance (comprising the US, India, Japan, and Australia), which is seen as a strategic centerpiece of US policy in the region. The imposition of tariffs, especially linked to India’s energy ties with Russia, risks fracturing this foundation of trust and cooperation.

Analysts suggest that while the stated reason for the tariffs is India’s Russian oil imports, the move also serves as a pressure tactic to extract trade concessions from India, particularly in sectors like agriculture, dairy, and genetically modified (GM) crops, which India has historically shielded. The timing, just months before India is set to host the Quad Leaders’ Summit, adds another layer of complexity, putting the future of such high-level engagements into question.

Moreover, the situation highlights the delicate balance India seeks to maintain in its foreign policy strategic autonomy. India has historically resisted entangling alliances and has pursued a multi-aligned foreign policy, engaging with various global powers based on its national interests. Its continued purchase of Russian oil, despite Western pressure, is a manifestation of this principle, aimed at securing its energy needs at competitive prices. The US tariffs, therefore, are perceived by some in India as an attempt to dictate its foreign policy choices, which New Delhi is keen to resist. The fact that China, a larger buyer of Russian oil, has not faced similar punitive tariffs from the US also fuels India’s perception of being unfairly singled out.

NAVIGATING THE FUTURE: CHALLENGES AND OPPORTUNITIES

The path forward for India amidst these new tariffs is fraught with challenges but also presents unique opportunities. The immediate challenge is to mitigate the economic impact on affected industries and maintain export competitiveness.

The new tariffs imposed by the US on India mark a significant moment in the evolving dynamics of global trade and geopolitics. While presenting immediate economic headwinds for India, they also underscore the nation’s growing importance on the world stage and its commitment to strategic independence. India’s response, characterized by a blend of diplomatic firmness, economic resilience measures, and a strategic push for diversification, reflects its determination to navigate this storm. The outcome will not only shape India’s economic trajectory but also have broader implications for the future of international trade relations and the balance of power in a multipolar world. As India stands firm on its national interests, its ability to turn this challenge into an opportunity for deeper economic integration and enhanced self-reliance will be a testament to its enduring strength and adaptability.

Beyond the immediate crisis, this situation could serve as a catalyst for India to accelerate its economic reforms and enhance its manufacturing competitiveness. As suggested by Indian industry leaders, focusing on improving the ease of doing business, creating a true single-window system for investment clearances, and boosting domestic manufacturing through schemes like Production Linked Incentives (PLI) could make India a more attractive destination for global investors and diversify its economic base. Furthermore, exploring untapped sectors like tourism could provide new sources of foreign exchange and employment.