What can be done to weather the challenges created by Donald Trump's tariff onslaught against the world, in general, and India, in particular? There is also the collateral damage from Chinese retaliation against the US, by way of curbs on export of rare-earth materials and rare-earth-infused magnets, which has been depriving Indian EV-makers of the powerful permanent magnets used in their motors.
The latest respite from this - reportedly assured by Chinese foreign minister Wang Yi to his counterpart when the two met in Delhi on Monday - can't prudently be taken as permanent. The emergency demands major surgery, not first-aid and sticking plaster.
Trump's trade czar Peter Navarro, in an FT article published on Monday, singled out India from the host of countries that continue to buy oil, gas, refined products and coal from Russia - including China, Japan, the EU, Turkiye and Brazil - and slammed it for providing a lifeline for Russia's war against Ukraine. If Navarro's article is seen alongside Trump's celebration of Pakistan of late, India must prepare to be saddled with a tariff of at least 25%.
China is the biggest buyer of both Russian oil and coal; the EU, the biggest buyer of Russian LNG. The US buys uranium, palladium and fertiliser from Russia. But somehow India ends up being the only sanction-breaker and financier of the Ukraine war.
Navarro and his master seem to be scared of dragons. So scared that they fail to appreciate that if Russian oil were not part of the global supplies needed to meet global demand, price of oil would shoot up, and inflation in the US would send Jerome Powell scurrying to jack up the federal funds rate, instead of lowering it.
If India faces high tariff hurdles in the US, how are Indian exporters, particularly MSMEs, to cope? True to Indian form, they have called for a subsidy package from GoI. Any US-specific subsidy will meet with a countervailing duty, warns trade expert Ajay Srivastava.
The solution can't be US-specific. Rather, it should be broad-based strengthening of India's industrial base, combined with major procedural reform in government and industry. Here are 8 concrete steps we could think of:
Protected by paanch Lower import duties across the board to a low, uniform level, such as 5%. Dispense with protectionist quality control orders. This is the only way to gain a share of synthetics/blended garments business, from which India is shut out.
For nascent tech sectors, institute special anti-dumping and safeguard duties to prevent heavily subsidised Chinese imports smothering these infant industries. A uniform 5% duty will give uniform effective protection of 5% to all sectors.
Unleash corp debt market Simply asking banks to lend to startups, exporters and MSMEs is futile. Banks don't have the manpower to identify the right borrowers, smaller NBFCs do. Let banks invest in bonds issued by NBFCs. Drop the condition that only the highest-rated bonds qualify for investment.
Create a thriving market for derivative instruments, including credit default swaps, to rationally distribute risk among as wide a section of savers as possible, while allowing subprime borrowers to raise capital on the debt market.
Cash in Get serious about the mandate for all companies above a size threshold, state enterprises and governments to necessarily allow their suppliers to convert their receivables into ready cash, by listing on Trade Receivables Discounting System (TReDS). Slash state government borrowing eligibility by twice the amount of payments outstanding to suppliers. Let rating agencies rate big companies from a prompt payment perspective, and give this 20% weightage in the overall credit rating.
Tech it, seriously Set up a technology upgradation fund, on the lines of Technology Upgradation Fund Scheme (TUFS) for textiles in the past. Labour productivity is not a question of asking workers to toil longer, but of increasing the capital they work with. Compare the output of someone working with a lathe, and someone performing machining with a CNC (computerised numerical control) lathe.
Repel magnets Shed dependence on permanent magnets souped up with rare earths. Develop magnetic reluctance motors, complete with the electronic add-ons to regulate their speed. These do not need super-strong permanent magnets.
Make rare more common Expand prospecting for rare earths in India. Develop existing sources better. Improve refining processes.
Traders keepers Play to the strength of Indian businessmen, who are, at heart, traders rather than industrialists. Let some large houses set up trading companies, like the Japanese Sogo Shosha, which can take care of finding buyers, developing markets, conducting international financial transactions and taxation, and managing logistics, including government paperwork. These can enable MSMEs to turn exporters, and enter new export markets.
Godrej, Bajaj and Tata sell extensively in Africa. Incentivise them to let MSMEs hitch a ride on their African safari. Strike a deal with Amazon and Flipkart, both of whom already enable many small producers to sell abroad. End official hostility to these presumed 'foreign devils' in return for quantified, angelic export promotion.
R&D-ready Address weakness of Indian business. Levy an R&D cess on companies that don't spend at least 5% of turnover on R&D. Give graded tax breaks to income derived from IP developed in-house.
This eightfold path to salvation can work only if India lives true to its multi-cultural genius. That means eschewing sectarian politics, and engaging in a genuine celebration of unity in diversity. That is the only shield against schism that Trump-enabled subversion by the usual suspects can well accentuate.
The latest respite from this - reportedly assured by Chinese foreign minister Wang Yi to his counterpart when the two met in Delhi on Monday - can't prudently be taken as permanent. The emergency demands major surgery, not first-aid and sticking plaster.
Trump's trade czar Peter Navarro, in an FT article published on Monday, singled out India from the host of countries that continue to buy oil, gas, refined products and coal from Russia - including China, Japan, the EU, Turkiye and Brazil - and slammed it for providing a lifeline for Russia's war against Ukraine. If Navarro's article is seen alongside Trump's celebration of Pakistan of late, India must prepare to be saddled with a tariff of at least 25%.
China is the biggest buyer of both Russian oil and coal; the EU, the biggest buyer of Russian LNG. The US buys uranium, palladium and fertiliser from Russia. But somehow India ends up being the only sanction-breaker and financier of the Ukraine war.
Navarro and his master seem to be scared of dragons. So scared that they fail to appreciate that if Russian oil were not part of the global supplies needed to meet global demand, price of oil would shoot up, and inflation in the US would send Jerome Powell scurrying to jack up the federal funds rate, instead of lowering it.
If India faces high tariff hurdles in the US, how are Indian exporters, particularly MSMEs, to cope? True to Indian form, they have called for a subsidy package from GoI. Any US-specific subsidy will meet with a countervailing duty, warns trade expert Ajay Srivastava.
The solution can't be US-specific. Rather, it should be broad-based strengthening of India's industrial base, combined with major procedural reform in government and industry. Here are 8 concrete steps we could think of:
Protected by paanch Lower import duties across the board to a low, uniform level, such as 5%. Dispense with protectionist quality control orders. This is the only way to gain a share of synthetics/blended garments business, from which India is shut out.
For nascent tech sectors, institute special anti-dumping and safeguard duties to prevent heavily subsidised Chinese imports smothering these infant industries. A uniform 5% duty will give uniform effective protection of 5% to all sectors.
Unleash corp debt market Simply asking banks to lend to startups, exporters and MSMEs is futile. Banks don't have the manpower to identify the right borrowers, smaller NBFCs do. Let banks invest in bonds issued by NBFCs. Drop the condition that only the highest-rated bonds qualify for investment.
Create a thriving market for derivative instruments, including credit default swaps, to rationally distribute risk among as wide a section of savers as possible, while allowing subprime borrowers to raise capital on the debt market.
Cash in Get serious about the mandate for all companies above a size threshold, state enterprises and governments to necessarily allow their suppliers to convert their receivables into ready cash, by listing on Trade Receivables Discounting System (TReDS). Slash state government borrowing eligibility by twice the amount of payments outstanding to suppliers. Let rating agencies rate big companies from a prompt payment perspective, and give this 20% weightage in the overall credit rating.
Tech it, seriously Set up a technology upgradation fund, on the lines of Technology Upgradation Fund Scheme (TUFS) for textiles in the past. Labour productivity is not a question of asking workers to toil longer, but of increasing the capital they work with. Compare the output of someone working with a lathe, and someone performing machining with a CNC (computerised numerical control) lathe.
Repel magnets Shed dependence on permanent magnets souped up with rare earths. Develop magnetic reluctance motors, complete with the electronic add-ons to regulate their speed. These do not need super-strong permanent magnets.
Make rare more common Expand prospecting for rare earths in India. Develop existing sources better. Improve refining processes.
Traders keepers Play to the strength of Indian businessmen, who are, at heart, traders rather than industrialists. Let some large houses set up trading companies, like the Japanese Sogo Shosha, which can take care of finding buyers, developing markets, conducting international financial transactions and taxation, and managing logistics, including government paperwork. These can enable MSMEs to turn exporters, and enter new export markets.
Godrej, Bajaj and Tata sell extensively in Africa. Incentivise them to let MSMEs hitch a ride on their African safari. Strike a deal with Amazon and Flipkart, both of whom already enable many small producers to sell abroad. End official hostility to these presumed 'foreign devils' in return for quantified, angelic export promotion.
R&D-ready Address weakness of Indian business. Levy an R&D cess on companies that don't spend at least 5% of turnover on R&D. Give graded tax breaks to income derived from IP developed in-house.
This eightfold path to salvation can work only if India lives true to its multi-cultural genius. That means eschewing sectarian politics, and engaging in a genuine celebration of unity in diversity. That is the only shield against schism that Trump-enabled subversion by the usual suspects can well accentuate.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
TK Arun