RoshanUS President Donald Trump’s recent threats to increase tariffs on imports may seem like a setback for global trade, but for India, it presents a unique opportunity. According to former Reserve Bank of India (RBI) Deputy Governor Viral Acharya, these developments could drive the Indian government to lower trade barriers, ultimately fostering competition and boosting economic growth.
The Impact of Tariff Changes on India
Trump’s proposed reciprocal tariffs, set to take effect from April 2, aim to impose equal import taxes on US trading partners. Given that India’s average import duties are around 10 percentage points higher than those of the US, these tariffs could impact Indian exports significantly. However, the Indian government has already initiated steps to counteract these effects. In February, it announced substantial tariff reductions and is currently considering cutting import duties on various US goods, including automobiles, chemicals, and electronics.
How Competition Can Drive Growth
Viral Acharya argues that increased competition will push Indian businesses to elevate their standards and efficiency, leading to better-quality jobs and a stronger manufacturing sector. Large firms that previously benefited from protectionist policies may face short-term losses, but in the long run, the overall economy will gain.
“In a truly competitive market, businesses shouldn’t rely on high margins unless they are the most efficient providers,” Acharya explains. Encouraging market competition will motivate companies to innovate, optimize operations, and enhance productivity.
India’s Business Landscape and the Role of Conglomerates
Acharya has previously emphasized the influence of India’s major conglomerates—Reliance Group, Tata Group, Aditya Birla Group, Adani Group, and Bharti Telecom Ltd.—on the economy. He believes these “Big Five” companies have expanded at the expense of smaller businesses, largely due to India’s historically high tariffs, which shielded them from foreign competition.
However, if Indian firms are exposed to global competition, they will be incentivized to invest in efficiency and technological advancements. Acharya suggests that phasing out tariffs gradually with clear policy communication will help businesses adapt smoothly while encouraging innovation and upskilling among the workforce.
Strategic Partnerships and Knowledge Transfer
Reducing trade barriers can also lead to increased foreign direct investment and knowledge transfer. As Indian companies form strategic partnerships with international firms, they will gain access to cutting-edge technologies, best practices, and global markets. This process could pave the way for Indian businesses to evolve into global industry leaders.
The Long-Term Economic Transformation
Prime Minister Narendra Modi recently urged Indian businesses to leverage global shifts in trade to invest more in their operations. While protectionist policies are often implemented to safeguard domestic industries, Acharya argues that historical data suggests lowering trade barriers does not lead to job losses.
“When India opened up its economy in the 1990s, it didn’t eliminate jobs; it created them,” he noted. Similar economic liberalization measures in the 2000s also led to increased employment and economic expansion.
By fostering a competitive business environment, reducing tariffs strategically, and integrating into the global economy, India has the potential to attract more private capital, drive innovation, and create higher-skilled jobs. This transformational shift could mirror the economic success India experienced in past decades.
Conclusion
While Trump’s tariff threats may initially seem like a challenge for India, they present an opportunity for long-term economic growth. By embracing lower trade barriers, enhancing competition, and encouraging investment in efficiency and productivity, India can strengthen its position as a global economic powerhouse.
