Why in the news
US President Donald Trump threatened reciprocal tariffs on India. Beyond the economic worry, the threat gives India a reason to revisit its protective trade stance and liberalise to boost manufacturing and exports.
Key facts
- India has among the highest tariff structures globally; many goods face duties above 50%.
- Tariff data for 2024: 65 different ad valorem rates and 145 specific tariffs.
- Quality Control Orders (QCOs) on items such as polyester and viscose act as non-tariff barriers.
- India rarely keeps applied tariffs below WTO bound rates, making policy unpredictable.
Tariff comparison
| Sector | India | US | EU |
|---|
| Manufacturing | 13.4% | 3.6% | 3.8% |
| Agriculture | 40% | 7.1% | 9.4% |
Problems in India’s regime
- High protection and stacked cess and duties add complexity.
- Classification disputes carry a cost, for example Volkswagen’s $1.4 billion penalty.
Possible US retaliation and impact
- Steep tariffs on Indian exports could hurt textiles, engineering goods and auto components.
- Investor confidence and India’s trade image could erode.
- India’s China+1 opportunity may suffer as firms hesitate to shift supply chains.
Two options for India
| Option | Features | Risks |
|---|
| Transactional bargaining | Bilateral talks, cutting some tariffs, giving concessions | Prolonged uncertainty, delayed investment, heavier compliance from US monitoring |
| Structural reform (recommended) | Unilateral rationalisation of tariffs to raise competitiveness | Needs domestic policy change |
Reforms suggested
- Adopt a uniform tariff of 5-10%.
- Scrap QCOs and other non-tariff barriers.
- Make low-cost inputs available to exporters.
Exam angle
- Related terms: applied vs WTO bound tariffs, ad valorem vs specific duty, QCOs.
- Concept: China+1 supply-chain diversification.