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| India must move beyond the ‘tariff king’ label — balancing farmer protection with productivity, innovation, and global trade competitiveness. |
Rationalising Tariffs, Independent of US Pressure: Why India Must Focus on Productivity and Innovation
Table of Contents
- Introduction
- India’s Tariff Landscape: The Global Context
- Tariffs in G20 Countries
- India’s Agricultural and Non-Agricultural Tariffs
- Why India is Labelled the ‘Tariff King’
- Agriculture’s Dominant Role
- Labour Force Dependence and Food Security Concerns
- The Irrationalities in India’s Tariff Structure
- Case Studies: Edible Oils, Rice, and Nuts
- Contradictions in Farmer Protection
- Rationalising Tariffs Without US Pressure
- Why India Should Set Its Own Trade Agenda
- Learning from Global Comparisons (US, EU, China)
- Adopting Tariff Rate Quotas (TRQs) for Sensitive Commodities
- Protecting Farmers Smartly
- Balancing Domestic Supply and Imports
- Beyond Tariffs: Boosting Productivity Through Domestic Reforms
- Investments in Agricultural Technology
- Supply Chain Efficiency
- Value Addition and Agro-Processing
- Building Global Competitiveness in Manufacturing and Services
- Lowering Non-Agricultural Tariffs
- Innovation and R&D Investments
- Leveraging Global Value Chains
- India’s Path Forward: Strategic Trade Policy
- Phased Reduction of Tariffs
- Encouraging Exports with Competitive Strength
- Negotiating Trade Agreements from a Position of Strength
- Conclusion
- FAQs
Introduction
When former US President Donald Trump famously called India the “tariff king,” it triggered debates worldwide on the country’s trade policies. His adviser Peter Navarro even labeled India the “tariff maharaja,” pointing to what they saw as excessively high duties. While the rhetoric was sharp, the numbers do reveal an uncomfortable truth—India has some of the highest trade-weighted tariffs among G20 nations, especially in agriculture.
But the real issue is not about responding to US pressure. The bigger question is whether these steep tariffs actually serve India’s long-term interests. Protectionism may safeguard farmers and small industries in the short run, but it risks weakening competitiveness, slowing innovation, and keeping India out of global value chains.
If India aspires to become a true economic superpower, it needs more than high tariff walls. The focus must shift towards rationalising tariffs, improving productivity, and encouraging innovation. This means smarter trade policies that protect sensitive sectors while opening up space for efficiency, investment, and global competitiveness.
In this blog, we take a closer look at India’s tariff structure, why it matters, and what reforms can help strike the right balance between farmer protection and sustainable economic growth.
India’s Tariff Landscape: The Global Context
When we talk about global trade, tariffs often become the deciding factor in how competitive an economy really is. Tariffs are essentially taxes on imports, and while they can protect domestic industries, they can also raise prices for consumers and slow integration into global value chains. According to the World Trade Organization (WTO), the G20 countries account for nearly 85% of global GDP and 75% of world trade, making their tariff structures crucial for shaping global commerce.
Tariffs in G20 Countries
A closer look at the numbers paints an interesting picture:
- Turkey tops the chart with the highest simple average tariff at 17.3%.
- India comes next with 16.2%, showing its protective stance.
- On a trade-weighted basis (which reflects real trade flows), India ranks first at 12%, significantly higher than the US (2.2%), EU (5.1%), and China (6.5%).
👉 This means that when we consider the actual value of goods traded, India charges higher duties compared to almost all other G20 economies. It is this factor that has often led to India being labeled the “tariff king” in global discussions.
India’s Agricultural and Non-Agricultural Tariffs
The picture gets even more nuanced when we split tariffs into agricultural vs. non-agricultural goods:
- Agriculture: India imposes a trade-weighted tariff of 64.3%, the highest in the G20. Its simple average tariff is 36.7%, highlighting just how protective the country is towards farming.
- Non-Agriculture: Tariffs are relatively lower, averaging 9.2%. While this is below Argentina’s 11.6%, it is still higher than most advanced economies.
👉 What this shows is that India is especially protective of its agricultural sector, largely because nearly half its workforce depends on farming, and food security remains a top priority.
Key Takeaways
- India’s tariff levels are among the highest in the world, particularly for agriculture.
- This protectionist approach reflects concerns about farmers’ livelihoods and rural stability.
- However, maintaining such high tariffs can limit competitiveness and affect trade negotiations.
By understanding this landscape, we can better assess why tariff rationalisation and domestic productivity reforms are critical for India’s long-term economic growth.
Why India is Labelled the ‘Tariff King’
Agriculture’s Dominant Role
India often finds itself labelled the “tariff king” because of its high trade barriers, especially in agriculture. To understand why, one must first look at the unique structure of India’s economy. Nearly 46% of India’s workforce depends on farming for livelihood, a stark contrast to just 2% in the US, 4% in the EU, and 22% in China. For a nation of 1.45 billion people, most of whom rely on small farms averaging just 1 hectare, agriculture is not just an economic activity but a matter of survival and social stability.
Food security has always been a political and emotional issue in India. Unlike developed countries, where large-scale mechanized farming sustains relatively small farming populations, Indian agriculture is fragmented, resource-constrained, and vulnerable to climate risks. High tariffs on agricultural imports are therefore seen as a protective shield for millions of smallholders who could not withstand sudden competition from cheaper global supplies.
Labour Force Dependence and Food Security
This farmer dependence is precisely why tariffs are politically sensitive. If agricultural imports were liberalized overnight, millions of Indian farmers would face price crashes and income losses. Such a shock could fuel rural distress, unemployment, and even social unrest. In this context, tariffs appear less like barriers and more like insurance for a vulnerable workforce.
However, this protectionist approach has a downside. High tariffs discourage efficiency, reduce competitiveness, and make India an outlier in global trade. For example, while countries like the US and China balance imports and exports strategically, India often relies excessively on tariffs to manage domestic supply. This not only stalls integration with global value chains but also restricts consumer choice and raises costs.
The real challenge, then, is finding balance. India cannot afford to fully expose its farmers to global competition, but it also cannot afford to remain insulated forever. Rationalising tariffs, especially on non-essential or low-sensitivity items, while adopting smarter tools like tariff rate quotas (TRQs) for sensitive commodities, could strike the right middle ground.
In short, India is labelled the “tariff king” because of its unique demographic, social, and food security needs. But moving forward, the focus must shift from defending high tariffs to investing in productivity, innovation, and global competitiveness—so that India’s farmers are protected not by walls of tariffs, but by the strength of their efficiency and output.
The Irrationalities in India’s Tariff Structure
India’s tariffs are not only high, but also inconsistent:
- Edible Oils: One-third of India’s agri-imports face only 10% duty.
- Rice: India is the world’s largest exporter but still imposes a 70% import duty.
- Nuts: Almonds face duties below 15%, while walnuts face tariffs above 100%.
- Poultry: Chicken legs attract duties above 100%.
- Dairy: Skimmed milk powder faces a 60% tariff.
- Processed foods: Some products like custard powder or soft drink concentrates face duties up to 150%.
Such irrationalities distort markets and fail to create a level playing field even for domestic farmers.
India’s tariff system is often described as complex, inconsistent, and protectionist, especially in the agricultural sector. While tariffs are meant to safeguard farmers and ensure food security, many of these duties appear irrational when viewed through the lens of trade competitiveness and fairness.
Take edible oils for example. They account for nearly one-third of India’s agricultural imports, yet the tariff is only 10%. This low duty leaves domestic oilseed farmers vulnerable to cheap imports, reducing incentives for local production. On the other hand, rice, where India is the world’s largest exporter, carries an import duty of 70%—a puzzling decision since India already dominates global rice markets.
The case of nuts highlights further inconsistency. Almonds, largely imported from the US, face duties of less than 15%, while walnuts are taxed at over 100%. Such wide variation not only distorts consumer prices but also creates confusion about which farmers the government is truly trying to protect.
The poultry and dairy sectors face some of the highest tariff walls. Chicken legs attract duties exceeding 100%, and skimmed milk powder is taxed at 60%. While these measures shield local farmers, they also drive up consumer prices and restrict choices, especially for lower-income households.
Even more extreme are tariffs on processed foods. Items such as custard powder, lactose syrups, and soft drink concentrates are taxed at a staggering 150%. These duties reflect a legacy of protectionism that does little to encourage domestic innovation or modern food processing industries.
Such irrationalities not only affect consumers but also hinder India’s ability to negotiate favorable trade agreements. Trading partners often view these duties as arbitrary and discriminatory, leading to friction in bilateral negotiations. More importantly, they fail to create a level playing field for India’s own farmers. For instance, oilseed farmers and cotton growers get little protection compared to dairy or nut producers. This selective shielding undermines India’s broader agricultural competitiveness.
For India to emerge as a global trade leader, tariff policies need to be rational, transparent, and strategically designed. Instead of blanket protectionism, India should adopt tariff rate quotas (TRQs), invest in domestic productivity, and promote efficiency across value chains. A rationalised tariff structure would not only support farmers but also make India a more reliable and competitive trading partner on the global stage.
Rationalising Tariffs Without US Pressure
When former US President Donald Trump called India the “tariff king,” it sparked heated debates about whether India should cut tariffs just to please Washington. But let’s be clear: India’s trade strategy should never be dictated by external pressure. Tariff rationalisation must reflect India’s long-term economic vision, not short-term political noise.
Why India Should Rationalise on Its Own Terms
Instead of knee-jerk reactions to US criticism, India should carefully align tariffs with national priorities. This means:
- Encouraging imports of goods that are cheaper or more efficiently produced abroad, reducing costs for Indian businesses and consumers.
- Focusing domestic efforts on sectors where India has a comparative advantage—for example, IT services, pharmaceuticals, and certain agri-exports.
- Boosting export competitiveness by making Indian industries part of global value chains, which demand cost-efficiency and world-class quality.
High tariffs may offer temporary protection, but in the long run, they weaken competitiveness by discouraging innovation and efficiency. Rationalisation is not about surrender—it’s about strategic strength.
Lessons from Global Leaders
India can learn from how other major economies manage their trade policies:
- China imports over $100 billion worth of agri-products each year, yet it remains the world’s largest exporter overall. It focuses on manufacturing efficiency rather than tariff barriers.
- The US, despite being the largest agricultural exporter, is also a net importer of farm goods. Instead of fearing imports, it thrives by competing globally.
- The EU doesn’t rely heavily on high tariffs. Instead, it supports its farmers through subsidies, innovation, and strict quality standards.
These cases prove that high tariffs are not the only—or even the best—way to safeguard domestic interests. Competitiveness, efficiency, and smart policy design are far more powerful tools.
India’s Road Ahead
For India, rationalising tariffs is about balancing protection with productivity. Sensitive sectors like agriculture can be shielded with smarter tools like tariff rate quotas (TRQs), while manufacturing and services benefit from lower input costs through reduced tariffs.
Ultimately, India’s goal should be to transition from being seen as the “tariff king” to being respected as a competitive, innovation-driven economy. Rationalising tariffs on India’s own terms will make the nation stronger, more self-reliant, and globally integrated—without bowing to US pressure.
Adopting Tariff Rate Quotas (TRQs) for Sensitive Commodities
In India’s ongoing debate on tariffs and trade reforms, one concept that offers a balanced solution is the Tariff Rate Quota (TRQ) system. Unlike blanket high tariffs that often distort markets, TRQs introduce flexibility by allowing a limited quantity of imports at a lower duty, while higher tariffs apply once that threshold is crossed. This approach balances the needs of farmers, consumers, and the economy.
Why TRQs Make Sense for India
India’s agricultural sector is highly sensitive, employing nearly half of the workforce and feeding over a billion people. High tariffs have long been used to protect farmers, but these often create irrational price gaps and fail to address demand fluctuations. TRQs provide a smarter alternative because they:
- Shield farmers from sudden import surges – Farmers are not exposed to unfair competition from cheap global imports flooding the market.
- Maintain affordable prices for consumers – Limited imports at lower tariffs ensure that essential items remain within reach for households.
- Encourage domestic efficiency – Farmers and producers are motivated to improve productivity and reduce costs, instead of depending solely on tariff walls.
Balancing Domestic Supply and Imports
TRQs can play a pivotal role in commodities where India struggles with recurring supply-demand mismatches. For example:
- Dairy products: Rising urban demand often outpaces domestic supply, making controlled imports through TRQs beneficial.
- Pulses: India regularly faces shortages of pulses like tur dal, leading to price spikes. TRQs can smoothen supply without harming local farmers.
- Poultry and meat: With changing dietary patterns, TRQs can help balance rising demand while giving domestic producers time to scale up.
The Strategic Advantage of TRQs
Globally, TRQs are used by countries like the EU and China to protect sensitive sectors while still engaging in fair trade. For India, adopting TRQs widely can:
- Strengthen its hand in trade negotiations by showing openness without sacrificing farmer interests.
- Improve food security by ensuring steady supplies at stable prices.
- Lay the groundwork for long-term competitiveness by nudging farmers towards productivity gains.
Adopting TRQs for sensitive commodities is not just about trade policy—it is about smart protection. Instead of rigid high tariffs, India can embrace a system that protects farmers, benefits consumers, and supports economic growth.
Beyond Tariffs: Boosting Productivity Through Domestic Reforms
While tariffs have often been used as a shield to protect Indian farmers from global competition, such measures offer only temporary relief. The long-term solution lies not in higher duties but in raising productivity, strengthening value chains, and building resilience in agriculture. By focusing on domestic reforms, India can reduce dependence on trade barriers and position itself as a competitive global player.
Investments in Agricultural Technology
Modern agriculture is increasingly technology-driven. Precision farming, powered by GPS mapping and sensors, enables farmers to use water, fertilizers, and pesticides more efficiently. Similarly, AI-driven crop monitoring provides real-time insights on soil health, weather changes, and pest infestations, ensuring better yields with fewer resources. Improvements in irrigation infrastructure—such as drip irrigation and micro-sprinklers—can reduce India’s heavy dependence on erratic monsoons. Additionally, biotechnology and high-yield seed varieties can strengthen resilience against climate change, pests, and diseases. These technological upgrades are crucial for narrowing India’s productivity gap with advanced economies.
Supply Chain Efficiency
India’s agriculture sector suffers from post-harvest losses, with nearly 15–20% of food output wasted due to inadequate storage and poor logistics (FAO estimates). This not only hurts farmers’ incomes but also undermines food security. To address this, India must invest in cold chains, modern warehouses, and rural infrastructure. By reducing spoilage and ensuring timely access to markets, farmers can secure better prices, while consumers benefit from stable supplies. Strengthening supply chains will also encourage private sector investment and export growth in perishable goods like fruits, vegetables, and dairy.
Value Addition and Agro-Processing
India’s agricultural exports remain dominated by raw commodities. To truly boost competitiveness, the focus must shift towards value-added and processed food exports. Instead of exporting raw paddy, India could export ready-to-cook basmati rice, packaged pulses, or dairy-based nutritional products. Such moves not only fetch higher returns but also generate rural employment in food processing industries. The government’s Production-Linked Incentive (PLI) schemes for food processing are a step in this direction, but scaling them up is essential.
By moving beyond tariff protection and prioritizing technology adoption, efficient supply chains, and value addition, India can transform its agriculture into a globally competitive sector. These reforms will ensure farmer prosperity, consumer affordability, and trade growth—all without overreliance on high tariff walls.
Building Global Competitiveness in Manufacturing and Services
India’s aspiration to become a global economic powerhouse depends not only on protecting its domestic markets but also on strengthening its role in manufacturing and services trade. To achieve this, the country needs to rationalize tariffs, boost research and development (R&D), and integrate more effectively into global value chains (GVCs).
Lowering Non-Agricultural Tariffs
One of the biggest barriers to India’s manufacturing competitiveness is high tariffs on non-agricultural goods. While protectionism may safeguard industries in the short run, in the long term it raises input costs and weakens global integration. Gradually lowering tariffs on manufactured goods can:
- Reduce the cost of raw materials and intermediate goods.
- Improve access to advanced technology and machinery.
- Encourage foreign direct investment (FDI) by signaling India’s openness to trade.
By aligning tariffs closer to global averages, India can build confidence among international partners and attract investment into its fast-growing manufacturing hubs, particularly in sectors like electronics, renewable energy equipment, and automobiles.
Innovation and R&D Investments
Competitiveness today is not only about cheap labor but also about innovation. Unfortunately, India spends only 0.7% of its GDP on R&D, compared to 2.4% in China and nearly 3% in advanced economies such as Japan, South Korea, and the US. This investment gap restricts India’s ability to create high-value, cutting-edge products.
To bridge this gap, India must:
- Strengthen collaborations between universities, industries, and government labs.
- Provide fiscal incentives and tax credits for private sector R&D.
- Focus on emerging technologies like AI, biotech, green energy, and advanced manufacturing.
Boosting R&D spending will not only drive productivity but also ensure Indian firms can compete globally on quality and innovation rather than price alone.
Leveraging Global Value Chains
The rise of global value chains has transformed how trade works. Instead of producing everything domestically, countries specialize in stages of production where they hold comparative advantage. For India, the biggest opportunities lie in electronics, pharmaceuticals, textiles, and digital services.
- In electronics, India can scale its semiconductor and mobile manufacturing industries.
- In pharmaceuticals, it already has a reputation as the “pharmacy of the world,” but moving into high-end biologics and R&D-driven drugs is crucial.
- Textiles can become more competitive with better logistics and design-driven exports.
- In digital services, India’s IT sector already leads globally, but value capture can be enhanced by focusing on AI, cloud, and cybersecurity solutions.
For India to be globally competitive, it must move beyond protectionism towards a model of openness, innovation, and efficiency. By lowering tariffs, investing strategically in R&D, and integrating deeper into global value chains, India can transform its manufacturing and services sectors into engines of sustainable, long-term growth.
India’s Path Forward: Strategic Trade Policy
Phased Reduction of Tariffs
India’s journey towards becoming a global economic powerhouse depends on how effectively it rationalises its tariff structure. At present, India is seen as a high-tariff economy, especially in agriculture. While protection has historically safeguarded millions of farmers, excessive barriers can also hinder competitiveness and trade partnerships. A phased reduction of tariffs, targeting an average rate of below 10% within the next decade, offers a balanced path forward. Lowering tariffs gradually ensures that domestic industries have enough time to adapt, modernize, and embrace efficiency. This transition not only enhances India’s integration with global markets but also attracts foreign investment by signalling policy stability and openness.
Encouraging Exports with Competitive Strength
Tariff cuts alone are not enough; India must leverage its comparative advantage in key sectors to build a strong export base. Industries such as information technology, pharmaceuticals, textiles, agro-processing, and renewable energy already showcase India’s global leadership potential. By focusing on quality, innovation, and brand reputation, these sectors can generate higher foreign exchange earnings and create employment at scale. For instance, India’s pharmaceutical exports already supply affordable generics to over 200 countries, while its IT services power global enterprises. Agro-processing, too, can add value to raw farm produce and help farmers earn better returns. A proactive export strategy, combined with government incentives, logistics upgrades, and market diversification, will help India offset the revenue impact of tariff reductions.
Negotiating Trade Agreements from a Position of Strength
Rationalising tariffs is not about giving in to international pressure—it is about reshaping India’s strategic trade policy. By streamlining its tariff regime, India can enter trade negotiations with stronger credibility. Lower and more consistent tariffs create room to negotiate bilateral and multilateral free trade agreements (FTAs) that provide wider market access for Indian goods and services. Instead of defensive postures, India can present itself as a confident partner ready to engage in fair, rules-based trade. This shift strengthens India’s hand in global trade forums like the WTO, while also enabling closer ties with high-growth markets in Asia, Africa, and Latin America.
Conclusion
India’s high tariffs, especially in agriculture, may have been justified historically, but today they often appear irrational and counterproductive. Instead of bowing to US pressure, India should rationalise tariffs on its own terms, focusing on efficiency, innovation, and productivity growth. A smarter approach involving TRQs, domestic reforms, and strategic trade policy can help India balance farmer protection with global competitiveness.
The long-term goal should not be to defend the “tariff king” title, but to emerge as a trade powerhouse driven by productivity, not protectionism.
FAQs
1. Why does India have such high agricultural tariffs?
Because nearly half its workforce depends on farming, and food security is a political and economic priority.
2. Are high tariffs always bad for the economy?
Not always. They can protect vulnerable sectors temporarily, but long-term reliance on high tariffs reduces competitiveness.
3. What are tariff rate quotas (TRQs)?
TRQs allow limited imports at low tariffs, with higher duties applied beyond a set threshold, balancing farmer protection and consumer needs.
4. How can India raise agricultural productivity?
Through better irrigation, seed technology, supply chain investment, and value-added agro-processing.
5. Should India lower tariffs because of US pressure?
No. Tariff rationalisation should be a sovereign decision aligned with India’s long-term trade strategy, not external pressure.
6. What role can innovation play in reducing tariffs?
Innovation raises productivity, making domestic industries competitive globally, thereby reducing the need for protectionist tariffs.
