Reform the economy to defeat tariff threat
- By Amitabh Kant
The world is in flux, and India is being tested. But every challenge is also an opportunity.
Tariffs and global headwinds should not weaken our resolve; they must galvanise us.
India must act boldly to seize this moment. This is our once-in-a-generation opportunity
to lead. We must not let it slip.
From August 27, India faces a 50% tariff, the highest of President Trump's ‘reciprocal’
tari=s. The US accuses India of financing Russia by buying Russian oil. However, Türkiye,
the largest Russian oil importer, faces 15% tari=s, the same as the EU, which has paid
EUR 297 billion for Russian gas since January 2022. The White House also remains
unaware of US imports of palladium or fertilisers from Russia. Prime Minister Modi has
heavily invested in the Indo-US economic, trade, and political relationship. However, the
US's antagonistic stance will impact future cooperation. Our strong institutional memory
emphasises our strategic autonomy.
Let us be clear, our energy security and strategic autonomy cannot be compromised. Let
us also be clear that this is not about Russia. India is rightfully refusing to bend, as we
have so many times in our history. Global pressure should not intimidate us. It should
galvanise us into pushing through the once-in-a-generation reforms India urgently
needs.
Fix Taxes
The Goods and Services Tax (GST) was India’s most significant tax reform. Seven years
on, collections are rising, and GST has enabled formalisation of the economy. Now is the
time to move forward with strong political will for GST reform. We need to move to a two-
rate GST structure and overhaul the GST business processes. New companies and
startups being registered must receive their GST numbers along with their PAN/TAN.
Technology must be leveraged to minimise the need for physical visits for GST
registration. Income tax reforms must also be brought in.
Eliminate Red Tape
A decade ago, a significant push to improve ease of doing business yielded notable
results. Now is the time to take it a step further and make India the easiest place to do
business in. Pending items, such as notifying the rules of the labour codes, should be
completed as soon as possible. States must go beyond incremental reforms and truly
embrace single-window clearances. Many of the most cumbersome processes have not
been made part of the National Single Window System (NSWS).Unlock Capital
The cost of capital for private enterprise must be brought down. The statutory liquidity
ratio (SLR) mandates that commercial banks hold 18% of their assets in government
securities. This reduces the pool of loanable funds in the economy and raises the cost of
capital for private enterprise. The SLR must be brought down to zero. This will unlock
lakhs of crores of additional lending, bringing down the cost of capital.
Liberalise Trade
We must recognise that a liberal trade regime is crucial in building up our manufacturing
ecosystem. In recent years, there has been a massive proliferation of quality control
orders (QCOs). These QCOs raise the cost of crucial imports and make our manufactured
goods uncompetitive in global markets. These QCOs must be scrapped. Further, our
tariffs on intermediate goods are too high and must be brought down as well. We need to
diversify our export markets by fast-tracking negotiations on trade deals.
Destination India
Tourism faces no tariffs. India, with its natural beauty, history, heritage, culture, and
diversity, sees a 1.5% share in international tourist arrivals. If we remove the visits of non-
resident Indians (NRIs), then this number falls even further. There has been no concerted
branding or marketing campaign for Indian tourism in the past decade. In a time where
countries are stepping up their efforts to attract tourists, we are lagging. We need the
biggest global branding and marketing campaign to unleash India’s potential. Otherwise,
with the 1800 planes Indian airlines are buying, we will just be ferrying Indians flying
abroad for holidays. We must attract global tourists.
Free our Cities
Our cities are the first impression visitors get when landing. For too long, city governance
has been stuck in limbo, relying on state governments for financing, planning, and human
resources. Despite the Constitutional Amendments that devolved powers to cities, it has
not been implemented in practice. Our cities must be made autonomous and financially
independent.
Crowd in Investment
In the Budget of 2021-22, a New Public Sector Enterprise (PSE) policy was announced.
The policy intended to minimise the presence of PSEs operating across the gamut of the
Indian economy. This needs to be taken up in mission mode. In the last financial year,
disinvestment receipts stood at Rs. 10,000 crores only. From minority stake sales, we
must move to strategic disinvestment. In the most recent budget speech, a second asset
monetisation plan, worth Rs. 10 lakh crores, was announced. This needs to be
operationalised at the earliest, too.
India is far from being a ‘dead economy’. We are, in fact, the world’s fastest-growing large
economy, driven by a decade of structural reforms, digital innovation, and investment in
infrastructure. Over 250 million people have exited multidimensional poverty, and the
extreme poverty rate has fallen below 3%, reflecting real improvements in quality of life.
Women are increasingly participating in this transformation. 80% of Stand-Up India loans
and 68% of Mudra loans have gone to women entrepreneurs. India’s Digital Public
Infrastructure (DPI) has revolutionised financial inclusion, while public capex on
infrastructure has more than doubled, laying the foundation for long-term productivity.
India has also met its 2030 green energy target five years early, and is investing heavily
in AI, quantum computing, and deep tech. Challenges remain, but the direction is clear:
this is an economy on the move, powered by ambition, resilience, and reform.
* The author is India's former G20 Sherpa, and former CEO of NITI Aayog.
