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21st December 2024 (10 Topics)

Tariff Reforms in India

Context

Eric Garcetti, the US Ambassador to India, recently spoke at an event organized by the US-India Business Council (USIBC). His comments were aimed at improving trade relations between India and the United States.

Key Points:

  • Call to Lower Tariffs: Garcetti emphasized the importance of reducing tariffs (taxes on imports) between India and the US. He said, “We need, together, to lower tariffs, not see them go up.”
  • Lowering tariffs would lead to more balanced and fair trade between the two countries, and also increase trade volume.
  • President Donald Trump’s Trade Stance: Donald Trump, the US President-elect at the time, had previously threatened to impose reciprocal tariffs on India.
    • Reciprocal tariffs mean that if India charges the US high tariffs (like on American goods), the US would charge India the same amount on their goods.
  • Trump highlighted this tit-for-tat approach, saying if India imposes a 100% tariff on American products, then the US would impose the same tariff on Indian products. He also mentioned other countries like Brazil who have high tariffs, adding that this policy would be applied to all countries with high tariffs.
  • Garcetti stressed the need for collaboration between the US and India, especially in areas like training and talent-sharing. He suggested that both countries should work together to meet the needs of companies in the Indo-Pacific region.

India-US Trade Relations

  • The US remains India’s largest trade partner, with bilateral trade reaching nearly $120 billion in FY24, slightly surpassing India’s trade with China.
  • Unlike China, though, India enjoys a favourable trade relationship with the US, making it a critical source of foreign exchange.
  • India was the sixth-largest beneficiary of the US-China trade war, with a $36.8 billion increase in exports driven by growth in electronics, pharmaceuticals, and engineering goods.
  • Indian companies had invested USD 3.4 billion in the US in the past year.
  • India lost duty-free access under the decades-old Generalised System of Preferences (GSP) programme in 2019, during Trump’s first presidency. India, previously the largest beneficiary, saw tariff-free benefits on approximately $5.7 billion worth of exports to the US.
  • Despite efforts to diversify exports, India’s dependence on the US has grown significantly over the past decade.
  • According to official 2022–23 data, the US accounted for 18% of India’s exports, up from 10 per cent in 2010–11.

Fact Box: India’s Tariff Regime

  • The Indian government has consistently raised tariff and non-tariff barriers to protect domestic suppliers across most sectors and to bolster indigenous production.
  • India's average tariff rate of 17% is higher than the US's 3.3%, but similar to other major economies like South Korea (13.4%) and China (7.5%).
  • However, India has demonstrated its openness to free trade by removing customs duties for imports from FTA (free trade agreement) partners such as ASEAN (Association of South East Asian Nations), Japan, and South Korea.
    • However, despite India's willingness, the U.S. has been reluctant to reduce tariffs through FTAs.
  • Many nations protect domestic industries by imposing significant tariffs on certain items. World tariff profiles 2023 published by the WTO lists the data on the highest tariff charged by countries.
    • The highest tariffs of some other countries include 457% by Japan, 887% by Korea and 350% by the US.
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