Impact of US Tariffs on Indian Exports
The recent imposition of a steep 50% tariff by the US on Indian goods has prompted serious discussions on several long-standing issues affecting India's trade policies.
Key Issues and Considerations
- Reliance on the US Market:
India's heavy dependence on the US as an export destination has become a critical point of debate.- The US has been India's largest trading partner for four consecutive years.
- In 2024-25, India had a $45 billion trade surplus with the US, which helps offset deficits with other countries, notably China.
- Exploring Multilateral Deals:
To mitigate reliance on the US, India is considering pursuing bilateral and multilateral trade agreements.- The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a potential option, especially as the UK has joined and the EU has applied.
- Key members like Japan, Australia, and ASEAN states are supportive of India's inclusion.
- Addressing US Trade Deficit Claims:
Despite the US’s claims of a trade deficit with India, the US holds a $40 billion surplus when considering revenues from digital services, financial activities, and more.- Analysts suggest using these figures in trade negotiations to bolster India's stance.
Challenges and Strategic Shifts
- Challenges:
- The Indian export sector's overreliance on the US market is exposed, similar to Europe’s past overdependence on US defense.
- Key sectors like apparel, textiles, and jewelry risk becoming unviable due to high tariffs, impacting low-skilled Indian jobs.
- Potential Strategic Shifts:
- Encouraging domestic procurement by major entities like the Indian Railways can offset export losses.
- Exploring diversification into new markets in Africa, Latin America, and South East Asia.
Conclusion
This tariff impasse presents both a challenge and an opportunity for India to rethink its trade strategies, reduce dependency on the US market, and explore multilateral partnerships and new market avenues.