India retains edge despite Trump tariffs but uncertainty ahead, says former commerce secy

India is already negotiating a trade deal with the US

India maintains a competitive edge despite the US imposing reciprocal tariffs but uncertainty is expected to persist until a trade agreement is finalised by September, former commerce secretary Gopal Krishna Pillai said on April 3.

Earlier in the day, US President Donald Trump unveiled his reciprocal tariff plan for his country’s trading partners. While a chart he held up for media showed a 26 percent levy on Indian imports, a White House annexure put the rate at 27 percent.

While tariff rates still provide India with an advantage over competitors, policy stability and business-friendly reforms would be key to sustaining trade competitiveness, Pillai said.

“This is only a preliminary first stage of tariff rate announcements. We still have a comparative advantage on the rates announced with respect to our competitors. No great disadvantage except for the uncertainty which is likely to continue till we conclude an agreement with the US, which is expected by September,” Pillai told Moneycontrol.

He said the focus should be on improving the ease of doing business in India at the ground level. Consistent policy, second-stage labour reforms, and providing adequate export credit and reimbursement of all taxes on exports would will help.

While announcing his tariff decision, Trump highlighted perceived trade imbalances. According to the US, India levies a 52 percent tariff on American imports, including currency manipulation and trade barriers, prompting Washington to impose tit-for-tat duties.

Other countries affected by the policy include China, which faces a 34 percent tax, the European Union 20 percent, South Korea 25 percent, Japan at 24 percent, and Taiwan at 32 percent.

The overall impact of reciprocal tariff measures appears to be a mixed bag, Gautam Khattar, principal, Price Waterhouse & Co LLP, said. While there could be challenges for exports of products such as smartphones, diamonds, jewellery items, and certain textiles, “the relative tariff arbitrage vis-a-vis other US trade partners — such as China, which faces a total of 54 percent tariffs, Vietnam at 46 percent, and Thailand at 37 percent — also presents a significant opportunity for Indian exports in the US”, he said.

Two significant sectors of India's export interest —pharmaceuticals and petroleum — have been excluded from the tariff coverage, Khattar said.

Since India is negotiating a trade deal with the US, further exemptions could be built in through these negotiations to mitigate the tariff impact on Indian exports. “The US, however, has negated many commitments made in their earlier FTAs through this move. A word of caution for India would thus be to proactively ensure that it future proofs its trade pact with the US while negotiating the trade agreement,” Khattar said.

The reciprocal tariff structure is part of broader realignments between India and the US. The two nations are holding talks and hope to sign the first tranche of a bilateral trade agreement (BTA) by September.