‘Is Russian oil worth the tariff hit?’ Abhijit Banerjee on US-India trade tensions

The new tariff will take effect on August 27.

Nobel Prize-winning economist Abhijit Banerjee has urged India to reconsider whether cheap oil imports from Russia are worth the escalating trade costs with the United States, PTI reported.

His remarks come after US President Donald Trump announced an additional 25 per cent tariff on Indian goods last week over New Delhi’s continued purchase of Russian crude, taking the total duty to 50 per cent,  one of the steepest levies imposed by Washington on any country.

The new tariff will take effect on August 27.

$27 billion in exports at risk

“We need to think hard about whether Russian oil imports are worth it and then go back to the US to say that… will they take it (tariff) off, if we stop importing Russian oil,” Banerjee told PTI on the sidelines of an event organised by BML Munjal University.

With the higher tariffs likely to hit around $27 billion of non-exempt Indian exports to the US, there is already talk in policy circles about scaling back Russian crude purchases.

“At a 25 per cent tariff, some of our exports are already not competitive, so maybe 50 per cent does not matter,” Banerjee noted.

India’s Russian oil advantage shrinking

India, the world’s largest importer of Russian crude, bought 1.6 million barrels per day in July. But refiners have placed no orders for August or September, as the discounts that once made Black Sea oil attractive have fallen to about $2 per barrel.

In FY25, India imported 88 million tonnes from Russia, out of total crude shipments of 245 million tonnes. Oil contracts for August and September were finalised before Trump’s August 7 tariff announcement.

Trade talks stuck over market access

The long-discussed bilateral trade deal between India and the US remains stalled, largely over Washington’s demand for greater access to India’s agricultural and dairy markets.

Banerjee also suggested linking broader trade issues with China to ongoing negotiations, telling PTI: “Maybe we should combine that with trade negotiations with China. I think it is a good moment to do it.”

China, ASEAN and the bigger picture

Following the 2020 Galwan clash, India tightened scrutiny on foreign investments from countries sharing a land border, including China, under Press Note 3, requiring prior government approval for any sector.

Asked if India should join the ASEAN trade bloc, Banerjee said: “Maybe, I think we need to. I think China is much more important than ASEAN.”

‘Middle class hurting, investments stagnant’

On the broader economy, Banerjee told PTI the outlook for this year is “not as good as we expected” amid geopolitical tensions and trade uncertainties.

He pointed to weak private investment and pressure on the middle class. “Companies like TCS are not hiring, the salary of IT employees is not increasing… These are all issues we have not dealt with, and we are sitting on them,” he said.