True friendship is when two friends can walk in opposite directions, yet remain side by side.
This oft-repeated quote may come in handy for Narendra Modi if he at all decides to comment on the tariff assault of 27 per cent that his “great friend”, US President Donald Trump, has inflicted on India.
(Although Trump’s chart, displayed during his remarks from the Rose Garden at the White House, said America would now charge India a discounted reciprocal tariff of 26 per cent, official documents suggest the import duty will be 27 per cent.)
Modi’s critics will surely use Wednesday night’s announcements from Washington — during which Trump described India as “very, very tough” and complained that his friend Modi was not treating the US “right” — to embarrass the Prime Minister, who had virtually campaigned for his friend’s re-election five years ago.
However, the 27 per cent import duty on Indian goods is substantially lower than the 34 per cent levied on China (effectively about 54 per cent), 46 per cent on Vietnam, 49 per cent on Cambodia, 37 per cent on Bangladesh and 29 per cent on Pakistan, according to Trump’s chart.
This is what the Indian establishment is likely to flag over the next few months, during which it will try to conclude a mutually beneficial, multi-sectoral Bilateral Trade Agreement with the US to show that Modi and Trump remain side by side.
For (Donald) Trump, it’s America first but for Modi, it’s India first. We are assessing the impact of (the) reciprocal tariffs imposed by the US,” junior finance minister Pankaj Chaudhary said on Thursday.
That senior ministers in Modi’s cabinet have avoided commenting on Trump’s tariff jab suggests that the Indian government does not want to confront Washington and would rather negotiate to reduce the impact of the import duties on Indian goods.
Sources in New Delhi said that commerce ministry officials, who went into a huddle from early morning, would begin negotiations under Section 4C of the executive order, which allows a tariff reduction for trading partners that align with the US on economic and national security matters.
While there was no official confirmation of India’s game plan, the commerce ministry said that it was carefully examining the implications of America’s reciprocal tariffs on India and was engaged with all stakeholders, including domestic industry and exporters.
The ministry referred to the agreement between Trump and Modi in February to work on the first phase of a trade deal by the autumn of 2025.
“The ongoing talks are focused on enabling both nations to grow trade, investments and technology transfers,” it said. “We remain in touch with the Trump administration on these issues and expect to take them forward in the coming days.”
The commerce ministry added that it was also studying the opportunities that might arise from this new development in US trade policy.
According to the Delhi-based think tank, Global Trade Research Initiative, there are opportunities for India in sectors such as textiles, electronics and machinery as competitors like China, Vietnam, Thailand and Bangladesh have been slapped with higher tariffs.
India can also gain — if it ramps up infrastructure and creates enabling policies — by focusing on packaging, testing and lower-end chip manufacturing since Taiwan, the main player in the sector, has been bruised by a 32 per cent tariff blow.
Analysts also said that while the headline number of 27 per cent appeared massive, the announcements had come as a relief because of the absence of any incremental impact on large exporting sectors like pharma and autos.
The new tariffs will, however, hurt sectors such as gems and jewellery and engineering products. The IT services sector, though not hit by tariffs, will also be affected indirectly because of the import duties’ impact on the US economy, which will reduce discretionary spending.
Amid these positive and negative signals from various sectors, the extent of the US traiffs’ impact on exports, and in turn the GDP, remained a topic of discussion among experts through the day.
According to EY, the worst-case impact on India’s GDP growth will not be higher than 50 basis points, which means the GDP growth estimate for the current fiscal is likely to be 6 per cent instead of the earlier projection of 6.5 per cent.
Standard Chartered Bank pegged the likely adverse impact on India’s GDP at 35-40 basis points while Emkay Global quoted a 90 basis point reduction in the GDP.
The mood in the markets — following Trump’s announcements — indicated that India was better placed than some of its peers. While Japan’s Nikkei dipped 2.8 per cent and Hong Kong’s Heng Sheng shed 1.7 per cent, the fall in India’s headline indices was only about 0.4 per cent.
While the initial reaction, from the experts and the markets, may not have hung a question mark over the Modi-Trump “friendship”, the real test will come soon.
There is little doubt that India will have to open up to more US imports in various sectors, which may result in similar demands from a host of other countries like the UK, with which India is engaged in trade talks. Such a situation will result in more imports, making the Indian market more competitive.
Thriving in such a competitive marketplace will require Indian companies to scale up on all fronts, which will remain a distant dream until the Modi government delivers on its promise of large-scale reforms and deregulation.