India can expect more serious challenges in the trade relationship with the United States to come. Beginning on April 9, tariffs as high as 27% will be applied to Indian products. This change comes amidst ongoing active trade negotiations. Specifically, these discussions target the huge $45 billion trade deficit that the U.S. holds with India. Both countries are continuing to negotiate in good faith. Experts caution that if done incorrectly, the timing of these tariffs could directly work against India’s goal of stabilizing its position in the global market.
The U.S. Trade Representative’s Special 301 Report—released just last week—is a telling indication of Washington’s increasing frustration with India’s mercantilist trade policies. India’s prohibitive import rules on dairy, pork and fish have been an especially contentious sticking point. These rules require non-GMO certification, but they are not based on sound science. Additionally, India’s weak patent protections and absence of trade secret laws have resulted in its placement on the ‘Priority Watch List,’ further complicating its trade dynamics.
GTRI’s Ajay Srivastava underscored the possible implications of these tariffs for Indian exporters. “I’m apprehensive about our exporters’ capacity – many are small manufacturers who will struggle to absorb a 27% tariff hike, making them uncompetitive,” he stated. He noted that high logistical costs, growing business costs and worsening trade infrastructure compound these difficulties.
India’s share of global exports is just 1.5% —considerably lower than its influence in the domestic market. The new tariffs would further erode any competitiveness that Indian goods would otherwise possess. This challenge comes at a time when India must enhance its ease of doing business to capture new trade opportunities expected to emerge.
Amidst these challenges, there is no shortage of reasons to be optimistic about India’s prospects. The country’s pharmaceutical industry benefits from an exemption from the common reciprocal tariffs. This relief indirectly benefits its generic drug owners, whose plants crank out about 45 percent of all U.S. generic medicines. Most significantly, Indian generic medicines make up 90% of the country’s prescriptions. Yet this sector is where India’s most strategic role can be found. It’s intended to draw in foreign investment while increasing exports, all during the backdrop of the continuing U.S.-China trade war.
For India to capitalize on these geopolitical shifts, it must address its regulatory approach, which is increasingly mirroring China’s according to Washington. Abhijit Das, former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, expressed concerns about the impact of the new tariffs: “India should be concerned – there was hope that ongoing trade negotiations would shield it from reciprocal tariffs. Facing these tariffs now is a serious setback.”
Furthermore, analysts suggest that the U.S.’s protectionist tariff regime could ultimately catalyze India’s growth by prompting global supply chain realignments. Yet, Ajay Srivastava warns that India must enhance its ease of doing business and invest in logistics and infrastructure to seize these opportunities. “If these conditions are met,” he commented, “India is well-positioned to become a key global manufacturing and export hub in the coming years.”
Mr. Dhar, another industry expert, underscored the critical nature of the current situation: “The timing couldn’t be worse – being in the middle of trade negotiations only deepens our disadvantage. This isn’t just about market access; it’s the whole package.”