MC EXCLUSIVE India should weigh savings from importing Russian oil against tariff risk: Nobel laureate Banerjee

Abhijit Banerjee

India must consider whether the benefit of importing cheaper oil from Russia justifies the risk of attracting US tariffs on its exports, Nobel laureate Abhijit Banerjee said, calling for a closer analysis of the trade-offs.

Banerjee recommended that India explore the idea of importing oil from other countries. "It’s a complicated issue. I can’t clearly estimate what the effect will be of switching our demand on the price of uncapped oil. If we buy Saudi oil, what will be the effect on the Saudi oil price? Will it go up? We need to explore that," Banerjee said in an interview to Moneycontrol on the sidelines of an event organised by BML Munjal University.

Since the outbreak of the Russia-Ukraine war in 2022, Moscow has supplied crude at steep discounts, with the Urals-Brent spread at one point touching $40 a barrel. That gap has since narrowed to less than $3 now.

The G7 countries imposed a $60 per barrel price cap on Russian crude in December 2022, allowing European firms to insure and transport oil to third countries as long as it is sold below the capped price. The price cap was aimed at restricting Russian revenues while maintaining the global supply of oil. In July, the cap was lowered to $47.6 per barrel.

Banerjee also suggested that India talk to China, Brazil, and other countries to explore a collective response to pressure from the US.

"We should talk to China, see if we can diversify our exports, because negotiating with Trump is tough," Banerjee said. "PM Modi is planning to go to China this month. I think, the government is already thinking on these lines," he said.

On August 6, President Donald Trump proposed to double tariffs on India from 25 percent to 50 percent, targeting New Delhi for purchasing Russian arms and energy. The additional 25 percent tariffs will be effective from August 27.

In FY25, India exported goods worth $86.5 billion to US, accounting for around 20 percent of India's total merchandise exports.

"With Trump, it’s not about economics. His first order concern is always, are you paying enough respect to me. It’s about his ego & power. So, negotiations get tough. We may sacrifice something (allowing imports of sensitive items), but I don’t know if that would add any value," Banerjee said.

"There is something, which is missing with Trump. I am not sure India can offer him something that would change our equation with the US," he added.

On the bilateral trade agreement with the US, Banerjee said that this is not the "right moment" for opening the market to US agriculture and dairy products.

India has opposed US agriculture and dairy imports, particularly genetically modified crops, citing concerns over public health and the impact on farmers’ incomes.

"We need to strengthen our farm sector. The Indian farmer is going to face challenges if we allow agri and dairy imports from the US. We shouldn’t put them in trouble right now, but we have to prepare for that eventually," Banerjee said.

He added that the dollar’s sharp depreciation against other currencies would make US imports cheaper. "It’s not the correct time for opening up to US," stated Banerjee.