Trump’s latest grumble: India should keep calm and carry on

With a wide range of Indian goods facing a 50% levy now, it scarcely matters if this hurdle gets pushed further up. It’s bad enough that Trump’s ‘reciprocal’ levy of 25% on our shipments was higher than the 15-20% he levied on those of rival exporters.

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This gap could  plausibly have been offset by efficiency gains in production and logistics, plus speedier customs clearances. But the additional punitive layer of 25%, meant to punish India for buying Russian oil, puts the US market out of reach for Indian producers in several categories. Unfortunately, this might not be the end of it. How we should respond has stirred a lively debate around our national interest as a rallying point.

At one level, being shut out of the US market for various goods will spell an economic setback. At another, Trump’s selective diplomatic aggression has placed New Delhi in a spot. While China and the EU have gotten away with larger supplies of energy from Russia, fall-guy treatment has been meted out to India.

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Patience could well be a virtue in these circumstances. Should the US be forced to rethink its trade reset—as may happen once the dust settles on its impact to reveal job losses and slower output growth in America—we shouldn’t be singled out again. That means ruling out retaliatory measures. It also means going ahead with economic plans to strengthen the Indian economy in diverse areas. 

The latter should include reforms in the field of digital commerce. For example, India has a Digital Competition Bill in the works that seeks a level playing field for Indian players alongside Big Tech players that happen to be American. Any dominance of a digital market needs safeguards against its abuse. 

So the bill aims to curb common malpractices like self-preferential business policies, bundled services, unfair pricing variations, unjustified bars on users, restrictions on third-party applications and the misuse of data access privileges. 

These do not constitute what Trump has warned against, an ‘attack’ on US Big Tech, even if these firms resist such rules. We should make it clear that new norms would apply to all digital companies that acquire market heft, regardless of national origin. 

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The equalization levy—or ‘Google tax’—on foreign service providers that India axed ahead of trade talks with the US was widely seen as  a giveaway to Big Tech. Whether or not to reinstate it should be part of a pragmatic calculus. As this tax yielded meagre revenues of around ₹3,500 crore, its elimination wasn’t a fiscal blow and pique at the turn of events since then is no reason to revive it. 

Our policy focus should be on relief for those in distress. Rather than offer subsidy support, we should spend scarce resources on ways to boost our competitiveness and target new markets. We need structural changes that would lower the cost of capital for small enterprises that make up a major chunk of Indian industry. A vibrant market for corporate debt could help non-bank lenders fund such units cheaply. An effort to hasten payments  to small suppliers of big companies, via an improved Trade Receivables e-Discounting System, would aid them too. What Trump says or does should matter less as we go along.