India Must Avoid Dependency For It Leads To Vulnerability

Trump’s 50 per cent tariff (basic 25% plus additional 25%) on Indian exports to the US has generated panic not only within the government circles but also in labour-intensive export sectors like textiles, gems and jewellery, leather goods and marine products.

Even as the India-USA Bilateral Trade Agreement negotiations seem bogged down because of market access challenges, the punitive additional tariff of 25% has come into effect, as Trump wants India to stop buying oil from Russia.

Fear of a sharp decline in exports to the US and the consequent—unaffordable—job losses at home has spurred the policymakers into damage-control mode. Suddenly, we are overwhelmed by events. Our dependency has become our vulnerability; we seem to be underprepared to ride out the storm.

Did we learn anything from Trump’s previous stint (2017-2020) at the White House?

Looks like we have not.

It was not too far back; just six years ago in 2019, Trump imposed tariffs on India’s steel and aluminium product imports and demanded greater market access for the US dairy items, agri-commodities, medical devices, etc. In addition, India was excluded from the Generalised System of Preferences (GSP) scheme.

India retaliated with customs duty on the US-origin goods, including lentils, apples, tree nuts (dry fruits) and so on. Even that time, the danger of Trump targeting India’s labour-intensive goods (textiles, jewellery, seafood, and leather) was very real; fortunately, the issue did not precipitate.

Fast forward to 2020 and then 2022. First, the world faced Covid-inflicted lockdown. Massive supply chain disruption upended established world trade. The world faced pockets of massive surplus in some regions and acute shortage in many others. Exporters lost markets, and importers struggled to source essential goods.

The Russia-Ukraine conflict in March 2022 worsened the situation, with the Western World sanctions on Russia creating an energy crisis for Europe and a Black Sea blockade preventing food shipments.

Many management and governance lessons evolved from these crises, but we hardly learnt. We continued with our business-as-usual attitude. The country may have to pay a heavy price for its lackadaisical approach to export-import trade and for failing to put its own house in order.

Several countries learnt key lessons from the successive crises. One, do not be over-dependent on any market for your export; diversify your markets geographically as much as possible. Two, do not be over-dependent on just one or two origins to source the goods you need to import. Diversify your sources of supply. Three, maximise your exports and minimise your imports for a healthy trade balance.

One is not sure to what extent India’s policymakers have imbibed lessons from recent history. Risks lurk all the time—unforeseen risks and unforeseeable risks.

History holds lessons all the time; it is just that we have to be good students.

One may categorise the Covid-19 lockdown as both unforeseen and unforeseeable. We cannot say the same for Trump’s tariff tantrums. This was foreseeable going by experience, but we failed to identify the risk and ring-fence the economy.

While export is important to generate foreign exchange earnings, there’s a huge domestic market with a billion-plus population waiting to be adequately serviced.

See our dependency on goods import—gold (nearly 100%), crude oil (over 80%), vegetable oil (over 60%), pulses (over 20%), coking coal, organic chemicals, fertilisers, computers, electrical machinery and many more.

Although currently hypothetical, two scenarios come to mind. In the first, imagine Trump and Putin come to an understanding, shake hands in friendship and the Western World sanctions on Russia are lifted. Do you think Russia will continue to sell crude oil to India at below the market price and continue to accept Indian rupees in payment? Does India have a plan to respond to this currently hypothetical but plausible scenario?

Another scenario. Out of India’s total annual vegetable oil import of 15 million tonnes, valued at about USD 15 billion, palm oil alone accounts for 9 million tonnes (60%) worth approximately USD 10 billion. What if two of the world’s largest producers and exporters, Indonesia and Malaysia, either stop or restrict the supply of palm oil to India (for whatever reason) or impose steep taxes on their exports? Do we have enough options?

Remember, Indonesia has a massive trade surplus with India estimated at USD 12 billion, as we import not just palm oil but also coal, timber and nickel. We repeatedly talk about becoming Aatmanirbhar in oilseeds and oils. But we don’t have the right policies in place.

Policy prescriptions are available. This author himself has provided many. But ‘political will’ to implement them seems to be lacking. This is where dependency can become vulnerability. Our policymaking is more often than not for crisis management rather than having a long-term vision backed by a strategic action plan.

G. Chandrashekhar is economist, senior editor and policy commentator specializing in global agribusiness and commodity markets. He serves as Independent Director on corporate boards. Views are personal