Economic Implications of Tariff Threats: Insights from Viral Acharya
Former RBI Deputy Governor Viral Acharya argues that Trump’s tariff threats may benefit India’s economy by prompting the government to reduce trade barriers, spurring competition and growth within domestic firms. He advocates for a phased approach to tariff reductions that encourages innovation and productivity, ultimately resulting in better job opportunities and economic advancement for India.
In light of US President Donald Trump’s tariff threats, former Reserve Bank of India Deputy Governor Viral Acharya believes that this could ultimately benefit India’s economy. He asserts that such pressures prompt the Indian government to lower trade barriers, fostering competition and growth amongst domestic firms. This heightened competitiveness may necessitate improvements in the quality of products and services offered by Indian companies, thereby creating better job opportunities and expanding the manufacturing sector.
President Trump’s threats involve implementing reciprocal tariffs on imports, which are predicted to significantly impact India due to the existing disparity in average import duties, which is approximately 10 percentage points higher in the United States. In response, the Indian government has proactively reduced some tariffs and is currently deliberating on further lowering import taxes on various U.S. goods, including automobiles, chemicals, and electronics.
India’s Commerce Minister, Piyush Goyal, recently engaged in discussions with his U.S. counterpart regarding a trade deal, during which President Trump mentioned that India is prepared to implement deeper tariff reductions. Acharya warns that while major Indian firms may experience initial setbacks due to increased competition, the broader economy will benefit by promoting efficiency and productivity.
Acharya, now serving as the director of doctoral education at NYU Stern School of Business, has advocated for restructuring India’s major conglomerates, which he describes as the “Big 5”: Reliance Group, Tata Group, Aditya Birla Group, Adani Group, and Bharti Telecom Ltd. He emphasizes that shielding large firms from international competition prevents innovation and growth within the industry, suggesting that exposing them to foreign firms could facilitate knowledge transfer and breed higher caliber global enterprises.
To mitigate any negative outcomes on Indian industries, Acharya recommends a phased approach to tariff reductions accompanied by transparent communication. This would encourage businesses to invest in innovation, efficiency, and workforce development. Prime Minister Narendra Modi echoed this sentiment recently, urging Indian companies to seize existing global opportunities for greater investment.
Acharya challenges the notion that removing trade barriers leads to significant job losses, asserting that past openings in the 1990s and 2000s did not result in job destruction. Instead, increased competition tends to enhance capital investment, productivity, and domestic consumption, in turn fostering higher-skilled employment opportunities. He asserts that adopting a more competitive stance is essential for India’s economic transformation at this juncture, echoing strategies from earlier periods of economic liberalization.
In summary, Viral Acharya posits that President Trump’s tariff threats could inadvertently benefit India’s economy by driving policy shifts that encourage competition among domestic firms. By reducing trade barriers, Indian businesses will be compelled to innovate and enhance productivity, ultimately leading to job creation and economic growth. The phased reduction of tariffs, combined with supportive government policies, could facilitate a smoother transition and capital investment in the economy, emulating successful strategies from the past.
Original Source: www.business-standard.com
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