GS3 – Indian Economy
Context
The recent imposition of 25% tariffs by the United States on various Indian exports has highlighted the risks of overdependence on a single trading partner and the need for broader trade and agricultural reforms.
Economic Impact of US Tariffs
- GDP Impact: India’s projected growth for FY2025–26 may decline by 20–30 basis points, reducing the estimate from 6.5% to around 6.2–6.3%.
- Major Sectors Affected:
- Gems & Jewellery
- Pharmaceuticals
- Smartphones
- Marine products
- Severely Affected Groups:
- Diamond workers in Gujarat
- Shrimp farmers in Andhra Pradesh and Odisha
Structural Issues in Trade
- Overdependence on the US: The United States accounted for 18% of India’s total exports in 2024.
- High Agricultural Tariffs: With average tariffs of 64.3%, India has limited scope for reciprocal trade actions.
- Weakening Global Trade Norms: The US tariffs breach WTO’s Most Favoured Nation (MFN) principle, challenging the integrity of the multilateral trade system.
Strategic Way Forward for India
- Export Diversification
- Expand trade partnerships with the EU, ASEAN, Africa, and Latin America.
- Promote non-traditional exports like processed foods, electronics, and green technologies.
- Agricultural Reforms
- Invest in agricultural R&D, particularly biotech crops (e.g., BT brinjal, GM mustard).
- Modernise agri-supply chains to reduce losses and improve efficiency.
- Strengthen export quality compliance and address non-tariff barriers.
- Balanced Trade Negotiations
- Offer targeted concessions such as importing more crude oil and defence equipment from the US.
- Reduce tariffs on selected luxury imports (e.g., premium agri-products, whiskey, luxury vehicles) via controlled quotas.
- Ensure food security concerns are protected during trade negotiations.
- Boost Services Exports
- Leverage India’s edge in IT, fintech, education, consulting, and legal services.
- Diversify services trade to cushion the impact of goods trade disruptions, especially with the US.