Former Reserve Bank of India (RBI) Deputy Governor Viral Acharya believes that Donald Trump’s proposed tariffs on Indian goods may not necessarily be bad for India. Instead, they could push the Indian government to lower trade barriers, increasing competition and fostering economic growth.
How Trump’s Tariffs Could Impact India
Trump has announced plans to impose reciprocal tariffs on imports from April 2, 2025. This means the taxes on goods coming into the US will match the tariffs imposed by other countries on American products.
For India, this could be a challenge because of the 10% tariff differential between the two countries. Economists predict that India will be among the most affected nations.
To counter this, the Indian government has already started reducing import taxes on various US products, including:
- Cars
- Chemicals
- Electronics
Viral Acharya’s View on Economic Growth
In an interview with Bloomberg, Viral Acharya explained that these tariffs could have a positive long-term effect by forcing Indian firms to compete globally. This would lead to:
- Higher-quality jobs
- A stronger manufacturing sector
- Better innovation and efficiency
He believes that if India lowers tariffs, foreign companies will enter the market, increasing competition. This would also create opportunities for knowledge transfer through strategic partnerships with global players. Over time, some Indian companies could become global giants.
India’s Tariff System and the Need for Reform
Acharya has previously argued that India’s high tariffs protect large firms while making it difficult for smaller businesses to compete. In a March 2023 paper, he pointed out that India’s “Big 5” firms—Reliance, Tata, Aditya Birla, Adani, and Bharti Telecom—have grown due to these protections.
To create a more competitive business environment, he suggests:
- Gradually lowering tariffs in phases
- Providing clear policy communication so businesses can plan ahead
- Encouraging investments in efficiency and innovation
- Focusing on upskilling Indian workers
A Lesson from India’s Past Economic Growth
Acharya believes that reducing tariffs now could bring transformational change, similar to what India experienced in the 1990s and 2000s. During that time, economic liberalization helped India become a key player in global markets. He suggests that following a similar approach today could help Indian businesses become more competitive worldwide.
While Trump’s tariffs may initially seem like a challenge for India, they could also serve as a catalyst for economic reforms. By lowering trade barriers and encouraging global competition, India can create a more dynamic and innovative business environment. Viral Acharya’s insights suggest that embracing change and strategic policy planning could lead to long-term growth and stronger global competitiveness.
