Trump's Tariff Threats could Benefit India, Says Former RBI Deputy Viral Acharya

New Delhi (The Uttam Hindu): U.S. President Donald Trump's threats to increase tariffs may actually benefit India’s economy, according to former central bank deputy governor Viral Acharya. Acharya suggests that the tariff hike could spur India to reduce its trade barriers, fostering greater competition and growth within the domestic market. While India faces the potential of being one of the worst-hit nations due to a significant disparity in import duties between the two countries, the trade pressures could drive Indian companies to improve their standards to compete globally. This, Acharya argues, will lead to higher quality jobs and a stronger manufacturing base for India.

Trump has threatened to impose reciprocal tariffs on countries starting April 2, essentially raising taxes on imports to the U.S. to match what a trading partner imposes on American goods. India’s government has already responded, cutting tariffs and discussing further reductions, particularly on U.S. goods like cars, chemicals, and electronics. Commerce Minister Piyush Goyal recently visited the U.S. to negotiate a multi-sector trade deal, and Trump has acknowledged India’s readiness to make deeper tariff cuts.

Acharya, who served as the Reserve Bank of India's deputy governor between 2017 and 2019, believes that while large Indian firms benefiting from protectionist policies may experience initial losses, the overall economy will gain. He emphasized that businesses in a competitive market shouldn’t enjoy excessive profit margins unless they offer the most efficient services or goods. Increased competition will drive Indian companies to boost their efficiency and productivity.

Acharya has previously argued for the breakup of India’s largest conglomerates, including Reliance Group, Tata Group, and Adani Group, which he says have grown at the expense of smaller local firms under the protection of high tariffs. He believes that exposing Indian businesses to global competition will encourage innovation, improve efficiency, and potentially lead to strategic partnerships that facilitate knowledge transfer and the emergence of global industry leaders.

To mitigate the impact on Indian industries, Acharya proposes that tariff reductions be phased in gradually with clear communication about the long-term goals. This approach would encourage businesses to focus on innovation, efficiency, and upskilling their workforce.

Prime Minister Narendra Modi has also called on Indian businesses to seize the opportunity created by the shifting global landscape to invest more. Despite fears that lower trade barriers could lead to job losses, Acharya points out that there is no evidence supporting this claim, citing India’s experience in the 1990s and 2000s when economic liberalization led to increased growth without significant job destruction.

Ultimately, Acharya sees the potential for India's economy to undergo a transformational change similar to what occurred in the 1990s, driven by greater competition, private capital investment, and productivity improvements—leading to higher-skilled jobs and increased domestic consumption.