Cutting Tariffs — India’s Trump Card?

In today’s edition — Amid threats from US president Donald Trump, cutting tariffs could be the only way out; India’s high net-worth individuals (HNWIs) list grows; and easing of immigration and cargo screening rules.

THE TAKE

Under Trump Pressure, India Must Reform Its Trade Tariffs

US President Donald Trump clearly wants to remind India that the threat of reciprocal tariffs is not going away. The issue has seemingly stayed on the top of his mind and recall, along with his other trading enemies like China, Canada and Mexico.

“India charges us 100% tariffs; the system is not fair to the US, it never was. On April 2, reciprocal tariffs kick in. Whatever they tax us, we will tax them. If they use non-monetary tariffs to keep us out of their market, then we will use non-monetary barriers to keep them out of our market,” Trump said while addressing a joint session of the US Congress on Tuesday.

India’s trade minister, Piyush Goyal, who rushed to the US over the weekend to find some common ground, has his task cut out.

The larger question posed earlier on The Core Report was what India should do. The simple and straight answer is to use this as an opportunity and reduce tariffs because we need to.

Nightmare For Importers

A new report in the Business Standard by Abhishek Anand of Madras Institute of Development Studies, Shoumitro Chatterjee of Johns Hopkins University, Josh Felman of JH Consulting and Arvind Subramanian, former Chief Economic Advisor and now of Peterson Institute has argued that India has one of the most restrictive trade regimes in the world, with manufacturing tariffs averaging 13.4%, more than three times as high as in the US or Europe.

India’s agricultural tariffs are even higher than those for manufacturing.

They argue that the tariff system is highly complex.

 In 2024, before the rationalisation in the recent Budget, India had no less than 65 different ad valorem applied rates and 145 unique specific tariffs, according to official data the government submitted to the WTO. 

This is because India imposes a ‘web’ of cesses on top of its standard Most Favoured Nation (MFN) rates. 

And then there are significant non-tariff barriers like the newly imposed Quality Control Orders (QCOs), which further complicate trade because a quality control order essentially means the Bureau of Indian Standards has to certify that an imported product meets quality standards before it can be sold in India.

This is a good idea in theory, but in practice, it is a nightmare for importers going by several accounts. 

The authors say India’s goal of raising manufacturing’s share of GDP and boosting exports has not worked, and the ratio has only declined as has the share of global manufacturing exports that create the maximum jobs.

While there are many reasons, the key argument, as also articulated by Dr Arvind Panagariya, chairman of 16th Finance Commission and former vice chairman of Niti Aayog is that exporting requires importing.

He told this writer in an interview last year that a good way to think of it is the extreme.

“Suppose you were to raise the tariffs to a level where your imports are zero, there'd be absolutely no reason to export. That is what we did for about four or five decades.”

The authors say that if India wanted to produce garments competitively, for example, it needed to offer firms access to competitively priced inputs, which are often imported. 

But when government tariffs make importing these raw materials difficult, it kills garment export activity, the authors have argued.  

The authors have also outlined several structures and a uniform tariff, including cesses of between 5% and 10% on final goods. 

 This, by the way, is what a reciprocal tariff with the US could also lead to. All of India’s trade applied duties are around 17%, while that of the US is 4%.

Cutting Tariffs: The Only Way Out? 

Trump has emphasised that the US will retaliate on non-tariff barriers as well, like the QCOs.

This is not the time I would want to be sitting in the Ministry of Commerce and the Department of Foreign Trade.

While cutting tariffs, as the authors point out and others have acknowledged, will create problems and maybe even shocks, it is perhaps a good time to return to the path we were following until around eight or nine years ago. 

This is when average tariffs were lower than what they are now.

A path we have little choice but to adopt, at least in the case of the US, because we are quite evidently under close watch.

CORE NUMBER

59.0

This is the total value of the HSBC India Services Purchasing Managers’ Index (PMI), which rose to 59.0 in February, up from 56.5 in January—its lowest reading in over two years. The latest data points to a sharp expansion in services activity, driven by rising domestic and international demand. More new orders meant companies increased output and hired more workers to keep pace, signalling strong business momentum. However, cost pressures remain a concern, with firms reporting higher expenses on staff and materials. Meanwhile, the manufacturing sector slowed sharply, with PMI falling to a 14-month low of 56.3, reflecting weaker production and order growth, as pointed out by Business Standard.

FROM THE PERIPHERY

—✈️ India is set to relax its immigration and cargo screening rules to make airports more competitive with global hubs like Dubai and Singapore, The Economic Times reported. The aviation ministry is in talks with the home ministry to eliminate rescreening for international transit passengers and transshipment cargo. Currently, travellers on connecting flights must clear immigration at layover points, causing delays. A government official said the move aims to streamline operations and enhance the passenger experience. The Bureau of Civil Aviation Security’s cargo screening policy is also under review.

💰 India ranks fourth among countries with the most HNWIs, according to a Global Wealth report by property consulting firm Knight Frank. The number of HWNIs, defined as people with at least $1 million in investable assets, increased by 4.4% in  2024; there are now 23 lakh HNWIs in the world. India saw a 12% rise in its number of HWNIs in the last year, bringing the total up to 191. James Pomeroy, global economist at HSBC, attributed the rise of HWNIs in countries like India to the country’s startup ecosystem, facilitated by widespread smartphone usage and a growing entrepreneurial culture. 

—🚀 Indian industrial conglomerate Larsen & Toubro (L&T) is expanding its aerospace business, focusing on private rocket and satellite manufacturing, Reuters reported. This news comes in light of India cutting its reliance on imports and boosting private participation in space exploration. L&T is assembling India’s first privately-built Polar Satellite Launch Vehicle (PSLV) in collaboration with Hindustan Aeronautics Limited. India expects to launch its first PSLV by mid-2025, a move that would vastly improve India’s Earth observation missions. That’s not all, India hopes to have a mammoth $44 billion share in the global space industry in the next decade, projected to grow to $160 billion by then. 

—🧑‍💼 Top Indian IT firms like TCS, Infosys, Wipro, HCLTech, and Accenture are significantly reducing bench time and bench size as the sector faces slower revenue growth, rising competition, and pressure to improve margins, Moneycontrol reported. Bench time (the period employees remain without active projects) has dropped to 35-45 days, from 45-60 days during FY20-FY21, when revenue growth was much stronger. While Bench size (employees not deployed on projects) has shrunk from 10-15% of the workforce to 2-5% now, the report added. .

✉️ Write to us here, for queries or feedback

📩 Was this email forwarded to you? Subscribe

💰 Want to sponsor this newsletter? Contact us

💰💰 Found The Core interesting? Consider supporting us

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH | ✂️ Rohini Chatterji | 🎧 Joshua Thomas