Nitin Pai: The Indian economy can be protected from Trump's rates

Copyright © HT Digital Streams Limit all rights reserved. Nitin Pai 4 min Read 10 Aug 2025, 01:16 pm ist India may not admit to President Trump’s political claims. (Reuters) Summary The geopolitics of it can be a greater concern than the economy. New Delhi must withstand the reactions on the knee pressure, wait for a good time to restore the relationship with the US and adopt structural reforms to achieve economic growth. The Indian economy is resilient. This will take up the shock of Donald Trump’s rates and plow. Like a river that eventually flows into the sea, the economy will respond to the sudden obstacle by changing the course and jumping new distributions. As I have written on these pages before, India’s size, diversity, demographics and popular expectations drive its growth. A fall in trade with the United States could shave up to half a percentage point of India’s growth rate this year. This is smaller than how much a bad monsoon affects India’s economic production. Also read: Mint Snapview: India must bend its muscle for digital markets to counter Trump rates India should not admit to President Trump’s political claims. To do this, the proverbial camel would enter the tent. Instead, New Delhi should keep his negotiating lines open, be ready to find a new common ground and build mutually beneficial options in the geo-economic and geopolitical domains. In the meantime, we must be prepared to carry pain. As Trump’s policy runs through the US economy, the US China competition in Eastern Europe as well as West Asia unfolds new realities, it is likely that Washington will rediscover the reasons for better relations with India. It will be a good time to do transactions. How long will it take? Maybe a year. What if this doesn’t happen? If we discover that the pain is more than we can bear, we can still make concessions that Washington demands. India’s policy reaction to Trump’s rates will certainly include a combination of financial support for the affected sectors, domestic economic reforms, incentives for local demand and export diversification to other markets. In general, the economic impact is manageable and will be managed. It is the geopolitical dimension that leaves us with a sense of crisis. India is not the only US strategic partner that alienated Trump. So, on one level, we should not be surprised that he did not make an exception for India. Yet his debilitating rhetoric and attempt to use Pakistan to submit India. This has been a serious blow in the process of convergence that started with talks between Jaswant Singh and Strobe Talbott more than 25 years ago. It will have long -term consequences. Also read: Indian agricultural and dairy sectors are strong enough to resist the tariff vagaries. Each corporate board wants to reduce the risk of relying on US sellers and supply chains. Each regulator will demand that the businesses that govern it show that they do not depend on Western firms and technology for critical functions. Even if Trump recalls his rates by the end of the month, US technology and companies will no longer enjoy the confidence they did until last week. The geopolitics of today’s situation are reminiscent of the period between 1989-1991. During that crisis, India compensated for the loss of the Soviet Union by opening its economy and looking east to Southeast Asia. This formula is just as valid today as it was then. Therefore, the fundamental response of New -Delhi must be to Trump’s rates to unleash a fresh dose of economic reforms. Do still 1991. The reform agenda is too well known – certainly within the economic brain confidence of the government – to spell out here. It is sufficient to say that the focus should be on structural reforms and not on palliatives for tariff hits. At least these reforms should be intense enough to cancel the damage by Trump’s rates. Also read: Recover policy: Let’s take Trump’s tariff tirade as an opportunity for tax reforms. It is understandable that people are demanding economic retaliation against the US or an embrace of China and Russia in response to Trump’s actions. However, that would be a big mistake. Here is what a cold and hard reading of reality tells us. First of all, it is in India’s interest to open its economy for global trade. Our trade barriers limit entrepreneurship, competitiveness and growth. Two, despite Trump’s recent moves, the US is still India’s most important economic and political partner. Three, as much as a friendly relationship with China, is desirable, Beijing has deep reasons not to care. Four, market power tends to concentrate in the global oligopolies in the economy for information age. Five is the nature of the future global economic order uncertain. India’s economic state coat must set a course navigating through these five factors. There are no categorical solutions, only contextual. PS: In response to my inquiry, Parplexity replied that “Between 1565 and 1901, Western powers systematically forced at least 32 separate cases of trade on Asia … virtually every major Asian political entity experienced some form of coercion. This represents one of history’s most comprehensive examples of economic imperialism.” PPS: ‘It is wrong to put temptation in the way of any people; Fearing that they must succumb and get lost; Therefore, if you are requested to pay or be molested, you will find it better policy to say, ‘We never pay any one Dane money, no matter how small the cost is; For the end of the game is suppression and shame, and the nation it plays is lost! ‘ ‘Rudyard Kipling (Irony envisaged) is the co-foundation and director of the Takshashila institution, an independent Center for Research and Education in Public Policy. 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