US Tariffs on India: Analyzing the Economic Impact and Policy Options
UPSC Relevance
Prelims: Indian Economy & International Trade (Balance of Payments, Current Account Deficit - CAD, Tariffs, Exchange Rate, Trade Deficit/Surplus), International Relations (Bilateral trade relations, WTO).
Mains:
GS Paper 2: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; Effect of policies and politics of developed and developing countries on India’s interests.
GS Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth, development; Effects of liberalization on the economy.
Key Highlights from the News
Dual Tariffs: The US imposed two types of tariffs on India's exports:
25% reciprocal tariff.
An additional 25% penal levy for importing oil from Russia.
US Objective: To reduce the trade surplus with India and deter India from importing oil from Russia.
Economic Impact:
These tariffs are likely to reduce India's GDP growth by approximately 0.6%.
India's Current Account Deficit (CAD) will increase.
India's exports to the US will significantly decrease.
Mitigating Factors:
New trade agreements with other countries like the UK and the European Union.
Rupee depreciation, which may help exports.
Solutions for India:
Continue negotiations with the US.
Diversify export markets.
Re-evaluate and reduce India's own import tariffs. This will lower the cost of raw materials needed for India's exports and make exports more competitive.
Advocate for a rules-based global trading order in collaboration with other countries.
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