India pushes for new markets as Trump tariff talks drag on

The latest round of trade negotiations between India and the United States ended with the not so surprising conclusion that there are no real differences between the two sides. Both know exactly what is off bounds and India left no room for doubts by clearly reiterating that farming, fishing, dairy and GM foods are not on the table even as a tariff deal could deliver big gains for US businesses in terms of unprecedented access to several sectors of the Indian economy.

Just when the political green signal will come is anyone’s guess but the Modi government is not holding its breath and has launched an energetic campaign to diversify export baskets for sectors hit by the 25% punitive tariff (in additional to the initial 25%) imposed by President Donald Trump. During his visits to the Gulf region, the latest in September to review the India-UAE high-level joint task force on investments, commerce minister Piyush Goyal has pursued enhanced access to Indian marine products.

Following trade challenges with the US, diversification of seafood exports are a focus area.  The Middle East, including the UAE, is a growing market. In the last financial year, India exported seafood worth $278.31 million to the Middle East and the number of Indian establishments eligible to do trade has since increased. Also in September, Goyal announced that the European Union has approved 102 new fishing establishments that will be eligible for exports improving access to the 27-member bloc. The government is working with marine product manufacturers to ensure export conditions such as packaging and quality are met at scale to quicken exports.

Work at Home

The tariff shock has brought home the realisation that both domestic business processes and export markets need urgent attention. Indian businesses have often benefitted from duties imposed on imports and while this has prevented them from being overwhelmed by cheap substitutes, a sense of complacency has stunted ambitions and growth. Efforts to rework free trade agreements with ASEAN, which have made slow progress, is another step in this direction. Not only would Indian exports need to seek new markets, domestic businesses will inevitably face stiffer competition as well.

Tariffs are firmly at the centre of the American political discourse and will be an issue in other relationships such India-China trade too. In this scenario, calculation that currently the impact of tariffs on the $87 billion India-US trade is limited may not be comforting. For one, the situation can worsen if the Ukraine war does not end or takes a turn for the worse and India finds itself a collateral victim. In such a situation, boosting consumption at home is vital and this is what finance minister Nirmala Sitharaman, information technology minister Ashwini Vaishnaw and Goyal underlined at a joint presser on Saturday. The reductions in rates of the Goods and Service Tax, they said, have been passed on to consumers by most businesses and the result was a significant uptick in economic activity.

Things could have been worse

As the extent of the pick-up in festival season buying is debated, it is important to remember the counter-factual. The gloominess and uncertainty generated by Trump’s arbitrary resort to tariffs might well have caused a funk in the economy. Instead of making plans to expand production, industry could have looked to sit tight. The GST pill was absolutely essential to ensure economic sentiment remained buoyant and Vaishnaw pointed out that foreign direct investments (FDI) had sensed the potential of a consumer boom in the Indian market following the cuts in GST rates and simplification of the structure with essentially two slabs of 5% and 18%.

According to Sitharaman, the price advantage has been passed on in almost all of 54 commodities the government has tracked since the new GST rates came into effect. In some instances like shampoos, toothbrushes, talcum powder, spectacle lens, erasers, air conditioners, tv sets  and feeding bottles, the actual decrease in prices is higher than the expected reductions, possibly because of specific GST rate advantages and efforts by manufacturers to increase sales. According to Vaishnaw the reformed GST could add as much as Rs 20 lakh crore to India’s Gross Domestic Product (GDP).

A stable and growing Indian economy is an incentive to the US to conclude a trade deal. A weakening economy could have persuaded Trump to tighten the screws hoping that India will succumb and bend on its self-declared no-go zones. No one does anyone a favour in international relations and trade, certainly not the current US administration which is strongly influenced by what’s-in-it-for-me considerations that mark the thinking of billionaires close to Trump.