#Trump tariffs# India trade barriers# Viral Acharya# Indian economy# US-India trade# protectionism# tariff cuts# competition in India
IBNS-CMEDIA: Former Reserve Bank of India (RBI) deputy governor Viral Acharya believes that US President Donald Trump’s tariff threats may have an unintended positive impact on India’s economy, Bloomberg reported.
Acharya noted that the Indian government is now being driven to reduce trade barriers, which could foster greater competition and economic growth.
He explained that increased competition would push Indian companies to raise their standards to compete with global rivals, resulting in higher-quality jobs and a stronger manufacturing base.
Trump’s reciprocal tariffs could hurt India
Trump has warned of imposing reciprocal tariffs from April 2, meaning US import taxes would match the levies imposed by trading partners on American goods.
Given the nearly 10 percentage point gap between average import duties in India and the US, economists believe India could be among the hardest hit.
However, the Indian government has already started taking measures to cut tariffs.
In February, it made significant reductions and is now considering further import tax cuts on US products, including cars, chemicals, and electronics.
Commerce Minister Piyush Goyal recently met with US Trade Representative Howard Lutnick to discuss a multi-sector trade agreement.
Trump remarked on Friday that India was prepared to make deeper tariff cuts.
Large firms may lose, but economy will gain
Acharya, who served as RBI’s deputy governor from 2017 to 2019, acknowledged that large Indian firms, which have long benefited from protectionist measures, might face initial setbacks.
However, he emphasised that the broader economy would benefit as competition drives efficiency and innovation.
“In a competitive market, companies should not enjoy high profit margins unless they are the most efficient provider of that good or service,” he said.
He also noted that Indian businesses, including smaller enterprises, have the potential to compete globally but must invest in boosting efficiency and productivity.
“Unless we subject them to competition, we will never see their best,” Acharya asserted.
Acharya calls for breaking up big firms
Acharya has previously advocated for dismantling India’s largest conglomerates.
In a research paper published in March 2023, he argued that five major business groups — Reliance Group, Tata Group, Aditya Birla Group, Adani Group, and Bharti Telecom Ltd. — have expanded their dominance at the expense of smaller firms, benefiting from the government’s high tariffs that shielded them from foreign competition.
He noted that reducing trade barriers would diminish the protective advantage large companies currently enjoy, promoting a healthier competitive environment for smaller and mid-sized businesses.
Job loss fears are unfounded, says Acharya
Addressing concerns that lowering trade barriers could lead to job losses, Acharya dismissed such fears as unfounded. He pointed out that when India liberalised its economy in the 1990s, it did not result in widespread job losses but instead drove economic expansion.
“There is no evidence that when we opened up in the 1990s, we killed jobs,” Acharya said, adding that similar positive outcomes were witnessed in the 2000s.
He asserted that increased competition would drive private investment, boost productivity, and lead to higher domestic consumption.
This, in turn, would create more high-skilled jobs and spur economic growth — a transformation that India needs now, Acharya said.
“What worked for us in the 1990s and 2000s can work again,” he remarked.
