Donald Trump’s punitive 50 per cent tariffs on India are a wake-up call for the nation of nearly 1.5bn. The high import duties, which the US president imposed on August 27 as punishment for the country’s purchases of Russian oil, have severely restricted India’s access to its largest export market. Economists estimate that the tariffs could reduce the country’s annual economic growth rate by up to 0.8 percentage points. Though India is still expected to be the fastest-growing major economy this year, its strained ties with Washington highlight its urgent need to build greater resilience against external shocks.
Prime Minister Narendra Modi wants India to reach high-income status by its independence centenary in 2047. That ambitious goal would require an average annual growth rate of around 7.8 per cent for the coming decades. But sustaining such momentum will be even harder if exporters are hobbled by rising tariffs or weakening global demand. Forecasters reckon India’s economy will grow between 6 and 7 per cent this year, assuming Trump’s duties stay in place.
Even if US tariffs are eventually diluted, or annulled by the courts, India would be wise to diversify its trade links. Recent efforts to repair economic relations with China and to accelerate talks with the EU on a free trade agreement will help. To strike meaningful deals, however, India will need to reduce its own protectionist barriers, which would also expose coddled industries to long-overdue competition.