The best way forward for India's trade policy amid Trump's tariffs

New Delhi must not get provoked and should continue focusing on its strategic priorities that will outlast the US president

- SUDIPTO MUNDLE

America's punitive tariff has kicked in. It is now time to take a step back and calmly consider India's best way forward in dealing with Donald Trump's America, keeping in view the fact that Indo-US economic and geopolitical partnerships long precede the current US president and will continue after him.

On the immediate issue of US tariffs, setting aside exempted items, about 70% of Indian exports to the US will be impacted by the 50% tariff rate. That works out to about 7.4% of total Indian exports and less than 1.6% of India's GDP. Estimates suggest that the adverse impact on India's GDP growth would be to the tune of 0.5% or less. In other words, the macroeconomic impact of the 50% tariff will be quite limited. The problem is that its impact is concentrated on a few employment-intensive export sectors, like textiles and apparel, gems and jewellery, and agricultural and marine products, especially shrimp. To avoid bankruptcies and worker layoffs in these sectors, the government must immediately launch special assistance packages for affected enterprises. Of course, there will be winners as well as losers. The Indian consumers will benefit from the lower prices of affected products in the domestic market: cheaper jeans, jewellery, shrimp, etc. They would similarly enjoy lower prices if India lowered its import tariffs under US pressure. Conversely, if India retaliates with steep tariff hikes on US imports into India, it will expose Indian consumers to higher prices while extending even higher protection to local producers already protected by high tariffs.