As the threat of reciprocal tariffs by the US has put pressure on New Delhi to slash import tariffs for the world’s largest economy on a bilateral basis, the highest concerns are being raised with regard to India’s “sensitive” agriculture sector. But some experts say the fears about India’s farmers being adversely affected by tariff cuts on imports may be exaggerated, while others are more wary of tariff reliefs to the US.
“Almost 80% of Indian agriculture is reasonably competitive. We are a net exporter of agricultural produce over the last 20 years,” says Ashok Gulati, agricultural economist and former chairman, Commission for Agricultural Costs and Prices (CACP) says. He stresses that there isn’t enough rationale for India agri-tariffs being kept “unduly high.” For example, India is the largest rice exporter in the world, and yet the import duty on it is as high as 70%. “Slashing it down to 10 to 15% will not pose a threat to Indian farmers,” Gulati adds. Similarly, there are several other commodities where tariffs can be reduced by 50% without any adverse impact on agriculture.
“Some of the highest duties are on alcoholic beverages and tobacco products, such as whiskey, vodka, rum, sparkling wine, and cigars, which face duties as high as 150%. Key agricultural products like walnut, honey, coffee, green tea, and sugar face 50-100% duties. It doesn’t make sense to maintain such high tariffs in all these cases, although there may be some sensitive cases,” Gulati argues.
Former chief statistician Pronab Sen expresses a slightly different point of view. “(If Trump’s insistence on bilateral deals with every country prevails) then it’s going to be mercantilism at its worst. Our strategy in such case should be balanced. We should certainly be wary of reducing tariffs on the sectors that need protection, such as agricultural goods,” Sen says.
According to an analysis by GTRI, the the sectors that would be the hist the hardest if the US tariff rises, is fish, meat, and processed seafood, with aggregate exports of $2.58 billion (2024) facing a 27.83% tariff differential right now. Shrimp, a major export, will become significantly less competitive. Cereals, vegetables, fruits, and spices face a 5.72% tariff differential, potentially impacting rice and spice shipments. Dairy products will be severely affected by a 38.23% tariff differential, making ghee, butter, and milk powder costlier and reducing their market share.
“Reciprocal tariffs by the US are likely to affect our coffee, dairy and poultry farmers and industry, marine farmers among others. Spices like turmeric may not face much problems as the US’s dependence on India is high,” Shweta Saini, agriculture economist and CEO, Arcus Policy Research, a New Delhi based think tank, says.
Sen, however, says that rather than exports, what the country should be worried about is the domestic farm sector’s vulnerability. I’m not worried about exports. The main thing is, imports directly threaten sales of domestic agriculture products in urban rather than in rural areas. If deprived of urban markets, the Indian agriculture sector is going to be in deep trouble. Their (US) tariffs are not as important for us. But for us to reduce tariffs would be very dangerous,” he cautions.
The effect of US reciprocal duties is not linear for Indian agri-exports. As China, Canada, Mexico respond to US duties, we have to wait and watch where the overall demand shifts, Saini opines.
What is required is a renewed urgency to improve domestic crop yields which have been long stagnant in the case of soybean and cotton among other items.
Easing chicken legs imports from the US (100% duty at present) would be tough for millions of Indian dairy farmers. Frozen shrimp exports to the US, which has a major share in the country’s marine products exports, does not attract duties, while India imposes 30% duties on marine products imports from the US.
The US had a share of 35% of the country’s seafood exports. KN Raghavan, secretary general, Seafood exporters association of India, says import duties on seafood could be abolished with the exception of fish varieties such as basa from Vietnam and Sardine from Gulf countries, for protecting domestic fishing communities.
India imposes much higher tariffs than the US in agricultural products — simple average tariff of 39% and a trade-weighted tariff of 65%, compared to the US’s 5% and 4%, respectively, according to a ICRIER paper.
“India has not only maintained its strongholds in traditional export commodities such as rice, sugar, crustaceans, and spices, but has also diversified into new products and markets to mitigate the risks associated with market fluctuations and enhance its export resilience,” according to a paper by National Institute of Agricultural Economics and Policy Research.
Energy
In the energy sector, any reciprocal tariffs on solar module by the US would adversely impact the export prospects for Indian manufacturers. Solar module exports by India witnessed a sharp growth from low base in in FY23 and FY24 at over 360% and 90% respectively, mainly driven by shipments to the US, but declined by 34% on year in the first nine months of the current fiscal. This is owing to the investigations undertaken by US authorities on the sourcing of cells by Indian OEMs, given the restrictions imposed on sourcing of cells & modules from certain regions in China, says Vikram V, vice president & co-group head, corporate ratings, ICRA.
Competitiveness of India’s exports of petroleum products to the US may be impacted by reciprocal tariffs, with Middle East and other countries potentially replacing India. The solace is that India’s cost of production of petroleum products is quite low as the export oriented refineries of RIL and Nayara are of high-complexity and large scale. Some analysts cite that the tariff differential in this case is in India’s favour. Imports of crude oil (0% import duty by India) and LNG (2.5%) from the US might see a jump, replacing cheaper Russian oil to an extent.
