India-US trade conflict: Fiscal support, WTO or retaliatory tariffs - what suits India's narrative?

Noida, Uttar Pradesh, India Mar 13, 2019, 01.09 PM(IST) Written By: Akash Sinha

File photo of US President Donald Trump with Indian Prime Minister Narendra Modi. Photograph:( Reuters )

Story highlights

The world has seen how the Sino-US trade issue is now being resolved through talks and negotiations after initial retaliatory measures.

The relation between India and the US has been on a positive trajectory especially in the last five years. When the US President Donald Trump announced to remove India from the Generalised System of Preferences (GSP) beneficiary list, India was quick to shrug off the US's decision. However, the buzz around the move in India says otherwise.

The GSP scheme allows imported goods tariff-free access to the US market. While India's trade with the US under the GSP is around $5.6 billion, India claims to have received benefits worth $190 million only per annum. It also asserted that while 3500 goods are protected under the scheme, only 1,784 goods from India received the concession.

President Donald Trump has used the trade incentives as a weapon in India's case alleging that the Asian country has so far refused to lower the trade barriers and have been taking steps that are hurting American firms. From new e-commerce policies to local storage of data to cap on stent prices, the Modinomics have upset America big time. Also, India wants to continue its oil purchase from Iran despite the US sanctions on the West Asian country. As per a Reuters report, India is in talks with the US on extending a sanction waiver which will allow it to buy Iranian oil at the current levels of around 1.25 million tonnes per month. 

Amid the rising trade tension, Washington may not be willing to give New Delhi any liberty - be it for oil purchase or under GSP. The snapping of the GSP will affect various items including leather goods, processed food and engineering equipment and tools as they will lose competitiveness in the US market.

As per a PTI report, India is considering various options including fiscal support to the affected sector and moving to the WTO against the US move to scrap the GSP benefits.

However, the GSP move is already set to cost $190 million to India and will be affecting the trade significantly. And even if PM Narendra Modi decides to come up with the fiscal support, it cannot be a long-term solution. It will only put more burden on the government's finances. Moving to the WTO is neither an explorable option as it could have an adverse impact on the relations between the two countries.

With $21 billion trade surplus with the US, India already has an upper hand and it needs to resolve the issue through a sensible approach. Bilateral dialogues should be prioritised instead of considering retaliatory tariffs on the US import items.

The world has seen how the Sino-US trade issue is now being resolved through talks and negotiations after initial retaliatory measures. Trump has hinted, time and again, of this kind of action against India. 

Earlier this month, Trump had threatened to impose 'a reciprocal tax' on India terming it a 'very high tariff nation'. India may not accept this argument but it cannot let the economy be a scapegoat of Modinomics vs Trumponomics anymore.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)