Pragmatism, Not Reckless Bravado Or Meek Surrender

The latest escalation of US tariffs on Indian imports once again proves the adage: nations have no permanent friends and no permanent enemies, only permanent interests. Not too long ago, there appeared to be bonhomie in our relations with the US; suddenly now a trade war is upon us.

It will be useful to separate the 25% tariffs announced against most Indian goods as part of President Trump's America First Policy from the additional 25% announced on August 6 as a penalty for continuing to buy Russian oil.

Regarding the first tranche of sanctions, as Prime Minister Narendra Modi categorically stated, “Whatever it takes, India will not compromise on the interests of its farmers, livestock keepers and fishermen.” There will be red lines in trade negotiations on both sides. What we need is skilful protection of our core strategic interests. Neither reckless bravado nor meek surrender will serve our interests.

We can yield on certain pet peeves of Trump when there are no real stakes for us. For instance, reducing tariffs on Harley Davidson motorbikes should not be a problem. We must trust the Indian consumer’s discerning approach; we are very price-sensitive and want good value for our money. Lowering tariffs is unlikely to substantially increase the import of luxury branded goods when equal or better products are available in the market.

We should stand firm on tariffs on commodities like cooking oil. India is the world's biggest importer; almost 60% of our consumption is imported. Nearly 25 million farmers raise oilseed crops, and we cannot forever depend on imports for a vital food commodity. Therefore, tariff protection for Indian farmers and incentives for raising oil seeds are non-negotiable in our quest for food security.

But we will do well to reject a doctrinaire approach with respect to genetically modified crops (GMOs). The enormous success of Heliothis-resistant BT cotton in India is a testimony to the need for judicious adoption of GMOs. GMOs are products of selective breeding through desirable gene introduction. All of agriculture over the past 10,000 years has been built on painstaking selective breeding of desirable qualities. Modern genetic technology merely makes it much faster and more targeted. We have strong regulatory agencies to ensure that only safe GM seeds are allowed into the country, and there are strict protocols to protect public interest. There is not a shred of evidence that genes or chromosomes in the food cause any harm to any human being. Everything we eat (except minerals and water) is from animal or plant cells, and they all contain genes. Agricultural giants like the US, China and Brazil embrace GM crops and enhance the productivity of crops and the quality of their foods. For India to be influenced by irrational European prejudices and doctrinaire, ideologically motivated organisations would be a meaningless self-goal.

We should identify our core interests—protecting our farmers and consumers, promoting investment and growth, and enhancing our global competitiveness. Once we are clear, rational and pragmatic in pursuit of our national interests, there is a reasonable chance of India being bracketed in the 10-15% tariff range. Tariffs will ultimately hurt the American consumer and economy. The only thing that matters for us is that we have a comparative advantage among countries that export to the US. As long as the tariff imposed on us is lower than, or at least not higher than, the tariff imposed on our competitors, we have no reason to be alarmed. Our strategic approach should be clear-headed and non-ideological, focused on our export competitiveness to the US, our biggest trading partner, and the world's biggest market.

That leaves us with the challenge of 25% penal tariffs for buying Russian oil. This is a shortsighted policy of the West to remove Russian oil from the global market. It is a classic case of cutting off the nose to spite the face. Russia’s invasion of Ukraine is a violation of all principles of sovereignty and modern statecraft. But imposing sanctions in respect of vital commodities on which the world economy and global well-being depend is a very unsound policy. The peak oil production figures of three major oil-rich countries against whom sanctions have been imposed are revealing. Venezuela had a peak production of 3.7 million barrels per day (mbd) in 1970; Iran's peak oil production in 1976 was 6.6 mbd, and Russia's production in 2024 was 10.9 mbd. Even a cursory glance at these figures shows that by completely eliminating these three countries from the global oil market, the world could lose up to 21 mbd of oil. The total oil production in the world is of the order of 90 mbd, and these three countries alone could account for 23% of global production if they produce at their peak level. Even now these three countries account for over 14 mbd (Russia: 10.5 mbd; Iran: 3.25 mbd; Venezuela: 0.9 mbd), or over 15% of global production. If the West really ensures that all this oil dries up by shutting down the market, there will be a severe oil shortage, and the price of oil will rise considerably. Global growth will be seriously affected. The world will almost certainly go into a grave economic crisis, entirely because of the indiscriminate sanctions.

Jury Secrets On What Sets Award-Winning Work Apart: MMA Global India

India complied with the oil sanctions against Iran, and we may have no choice but to comply in respect of Russian oil also. We may lose the $5-10 per barrel discount we are enjoying now. That will cost us about $5 B per annum. But we cannot afford to face penal tariffs that will cost our economy very dearly. The net result will be that China will benefit with even deeper discounts on the purchase of Russian oil. Paradoxically, the US and Western policy of indiscriminate sanctions will hurt India and strengthen their great rival, China!

But while we may comply with sanctions, we should build global consensus to keep vital commodities—food, fertiliser, energy and critical minerals—out of the sanctions regime. No matter what the problem, the remedy should not be worse than the disease.

The author is the founder of Lok Satta movement and Foundation for Democratic Reforms. Email: drjploksatta@gmail.com / Twitter@jp_loksatta