India Has Many Options Besides The Outcome Of Alaska Meeting

While the meeting does not expect to announce a ceasefire, especially in the absence of Ukraine President Volodymyr Zelensky, any positive momentum in that direction gives India hope for a reduction in tariff.

“As of now, we should wait for the meeting’s outcome and see whether the US is reducing or withdrawing the oil tariffs on us. If the oil tariffs stay, negotiations on a Bilateral Trade Agreement do not hold any ground. Even if we get a lower country-specific tariff, oil tariff will take away all that advantage. Hence the future of the BTA talks also hangs on the oil tariffs,” said Pankaj Chadha, chairman, EEPC.

If the meeting goes well and oil tariffs are taken back, India and the US will resume trade talks, and the US team will arrive on August 25.

If it does not bring about any positive outcome on oil tariffs and India keeps buying Russian oil, the exports may suffer close to $50 billion loss, resulting in job losses.

“India will have to accelerate exports to Europe, ASEAN, Africa, the Middle East, and Latin America. Gains in the first two years might recover only $10–15 billion of the $50 billion lost, requiring structural reforms and aggressive trade diplomacy to be sustainable,” said Ajay Srivastava, founder, GTRI.

During the Independence Day speech, Prime Minister Narendra Modi talked about protecting agriculture and reducing GST slabs to two, which will simplify taxation of MSMEs.

If India stops buying Russian oil, and the US and India go ahead with BTA, India will have to grant duty-free entry to up to 95 per cent of US goods and commit to buying $50 billion in American oil, gas, and defence products. Export losses will still be about $15 billion a year.

“If tariffs raise consumer prices and unemployment in the US, domestic political pressure could force a cut to around 15 per cent for all countries. India’s best role here is to quietly highlight the tariffs’ cost to American voters,” said GTRI.

While the core inflation went up to 3.1 per cent in the US, the retail inflation in July remained the same as in June. The effects of tariffs will start showing from August when the products with higher tariffs from trading partners reach the customers. “However, there will be a lag of a couple of months before the real impact on inflation becomes visible. Further, China too is in a 90-day period of lower tariff currently,” said Chadha.

“When Trump’s basic premise on tariff hike that the supplier will bear the added cost and manufacturing will return to the US will be proved wrong, there will be political pressure on the government to lower tariff. It is in the best interest of India to lie low and strengthen domestic manufacturing,” he added.