Andy Mukherjee: Trump’s tariffs should push India to double down on reforms
- New Delhi’s best best is to revive its liberalization project that began in 1991 and forge new trade relations. If it repudiates self-sufficiency, India needn’t feel shackled by Trump’s ‘Liberation Day’
US President Donald Trump’s ‘Liberation Day’ package of tariffs is being interpreted in India in three different ways. The immediate reaction is relief mixed with schadenfreude: At 26%, the tax on India is not the slap on the wrist that diplomats in New Delhi would have hoped for, especially after making concessions to Elon Musk’s Tesla and Starlink as well as to Alphabet and Meta. But that barrier is at least less severe than China’s 34% and Vietnam’s 46%.
The second view, popular among geopolitical analysts, is that this is nevertheless a betrayal of an important ally: Is it fair to be punished like this for agreeing to be America’s bulwark in Asia against China’s rising dominance? Has India’s Narendra Modi administration erred in placing too much trust in his friendship with Trump, and by refusing technology and capital from Beijing?
Also Read: Mint Snapview: Many countries will retaliate against Trump's tariffs. India must not.
The final opinion, which some businesspeople hold privately, is that the White House’s shocker on trade is a once-in-a-generation opportunity: It can help resolve an unfinished political debate from the early 1990s on just how open the Indian economy must be, to whom, and for what.
Marry the three assessments, and the obvious conclusions are rapprochement and reform. Modi should mend bridges with Chinese President Xi Jinping and seek to actively participate in intra-Asian production networks. At the same time, to quickly exit Trump’s dog-house, New Delhi should dangle the carrot of duty-free (and hassle-free) access for American firms to the most-populous nation.
This must go on alongside technical negotiations. For instance, how did the Trump administration conclude that India was charging American exporters double of 26%? Did it count India’s goods and services tax (GST) as a trade barrier? If GST is lowered, but agriculture remains behind high tariff walls, will India qualify for Trump’s global rate of 10%?
Until those wrinkles are ironed out, Indian exporters will suffer with the rest of the world. The broader economy may have to put up with capital costs that remain elevated globally. Beyond that, however, the only interests that have to be sacrificed are of a tiny group of local tycoons.
For 600 million workers and 1.4 billion consumers, Trump’s trade war is a wake-up call to revive the three-decade-old liberalization project.
Also Read: Manmohan Singh, the leader who liberalized India
The Bharatiya Janata Party, which was in opposition when the project began, didn’t care much about pre-1990s, Soviet-style state socialism. But it was also suspicious of the agenda being thrust upon it by the West. When KFC was trying to open its first restaurant in 1995, a prominent BJP leader famously quipped: “Computer chips, yes. Potato chips, no."
Modi didn’t exactly align with this ideology. Under him, however, a small group of local billionaires appeared to have lobbied for and received protection from foreign competition, packaging their goal of dominance as national interest. Import taxes, which had fallen steadily since 1991, shot up again to among the highest in the world.
A longstanding territorial dispute with China erupted as border clashes in 2020, leading to a prolonged economic estrangement: The trade deficit with the neighbouring economy ballooned to $100 billion a year. Yet, New Delhi wouldn’t let Chinese firms reinvest those gains in India. That also meant missing out on technology, like BYD’s five-minute supercharger that can help control emissions in polluted cities.
Rapprochement of investment relations with Beijing and trade-policy reforms under pressure from Washington will put the squeeze where it should be: on large conglomerates like the Tata Group, Reliance and Adani Group. These groups should accept bold risks with uncertain payoffs, like China’s DeepSeek did, or stop expecting to be coddled by state protection.
Nationalism has merely meant a transfer of billions of dollars in subsidies to assemble mobile phones or solar panels and allowed success to be claimed for the government’s ‘Make in India’ programme.
Also Read: Looming US tariffs could be bad news for India’s Big Five
But if the country’s political left is unhappy with stalled manufacturing and high youth unemployment, many in the ruling right wing aren’t exactly thrilled with the relentless rise of a few big firms, especially as genuine entrepreneurship remains hampered by red tape.
A complete repudiation of the discredited ideology of self-sufficiency is overdue. A global trade war offers an excuse for the Modi government to rebrand itself as the antithesis of the Trump administration. That’s how the 1990s reforms also started; a balance-of-payment crisis worsened by the collapse of the Soviet Union turned socialists into free-marketers. There’s no need for New Delhi to feel shackled by ‘Liberation Day.’ ©Bloomberg
The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.
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