India has room to lower import taxes on many goods without worrying about a flood of imports. That’s according to Ramesh Chand, Member (Agriculture) at NITI Aayog and one of India’s leading agricultural economists.
Chand’s and Damodaran’s comments come as the April 2 deadline approaches—a date when US President Donald Trump has threatened to impose new tariffs on imports from all countries, especially India.
Chand had a larger point: He worried that if Trump imposed reciprocal tariffs, India would be in a situation where it applied different tariffs on the US while maintaining separate tariffs for the rest of the world under the WTO’s MFN (Most Favored Nation) rules.
Wouldn’t India then run afoul of the WTO and risk being penalised by the organisation? No, said Chand, because Trump is seeking similar deals with all countries—where they charge the US different tariffs compared to other nations—in violation of WTO rules. “I think in this kind of situation, I would have expected the WTO to call a session and discuss it,” Chand said.
But with the WTO silent, the global multilateral system will get wrecked. However, neither India nor other countries have much choice. “All countries will adjust to reach some agreement with the US, setting aside the multilateral and Most Favored Nation agreements with other nations,” Chand said.
India must therefore focus on designing a strong bilateral deal that benefits both sides, Chand emphasised—an idea that Harish Damodaran wholeheartedly agreed with. So, what should be the contours of this bilateral deal?
First, Dr Chand said India has a lot of leeway to cut tariffs on commodities like rice, where India is anyways globally competitive. Tariffs of 30% and 40% on rice is uncalled for, they are redundant tariffs, said Chand.
Additionally, India currently imposes high taxes on certain products, such as a 100% tax on tea. However, countries like the US don’t even export tea to India. These high taxes are meant for other countries like Sri Lanka and Vietnam. In short India can reduce tariffs on many agri products to zero to placate the US without endangering any of our food products or producers.
Second, Chand said India should agree to import from the US what it is anyways importing and US has large supplies of those items: for instance, edible oils. India imported $18 billion worth of edible oils this year. Damodaran added that India should agree to an import quota with the US on edible oils.
“Maybe we can have some kind of special duty dispensation or a tariff rate quota. We could say, ‘Hey, we’ll buy a certain amount of, say, soybean oil from you at a concessional duty rate.’ I think we can implement something like this.”
Chand agreed, saying, “Negotiations are already underway, and ultimately, we should move in the direction of a bilateral trade agreement where the interests of both parties can be addressed.”
There are concerns that if India reduces import taxes to zero on goods from the US and other countries, it could lead to a flood of foreign products entering the Indian market. Chand said India must evaluate products individually. Often, “we have high bound tariffs on certain commodities only as a cushion in case international prices crash suddenly,” he explained.
Damodaran, argued that the United States is particularly interested in selling corn, cotton, and soybeans to India. This comes as the US faces trade tensions with China. China is a major buyer of these commodities, and is already looking for alternative suppliers like Argentina, Brazil, Paraguay.
He referred to a US department of Agriculture report which sees India consuming huge amounts of these products as India’s per capita income and population increase.
He said his hunch was that the US will not be keen to take on China and India simultaneously since both are the largest markets for agri products like corn, soya and cotton which US produces in plenty. Damodaran believes India therefore has scope to manoeuvre a get a good deal.
However, Damodaran cautioned that if India were belligerent and the US were to impose 30% tariffs then some of India’s largest exports to the U.S. like shrimps, will suffer badly. He said “India exports around $2.5 billion worth of shrimp. If the US were to impose a 30% import tax on Indian shrimp – mirroring some of India’s current tariffs – this valuable market could be jeopardised”.
He also raised concerns about rice exports, specifically basmati rice. “Similarly, if the US decided to impose a 30% tax on our basmati rice, we would definitely need to protect our export interests,” Damodaran added.
In short both experts agreed that India can give in to a lot of demands of zero tariffs to the US. India can also import more much needed items like edible oils from that country. But our officials will have to be vigilant and negotiate a bilateral deal carefully.
