Q: How difficult is it for a sovereign country like India to put up with President Donald Trump’s unilateral statement that the US will “open up” our economy, when the trade talks are just under way?
In fact, I would like to see it also from the Indian side. The US is one of our leading trade partners, topmost, if anything. At the junction we are in, and given our growth goals and ambition to reach Viksit Bharat by 2047, the sooner we have such agreements with strong economies, the better they will serve us. So, I’d rather put my own statement on (Trump’s): “Yes, I’d love to have an agreement, a big, good, beautiful one; why not?”
Q: But, what are the red lines India has drawn?
The negotiating team ensured that industry’s concerns were all taken on board before they sat at the table for talks. Agriculture and dairy have been among the very big red lines, where a high degree of caution has been exercised. There are some areas where one can always look at, seek greater market access for us, and also open up.
Q: Even in agriculture, there’re areas with little or no domestic vulnerabilities…
Possibly, but that (opening them up) is only with the consent of the department of agriculture. There’s no way we could do anything that would weaken our agriculture, our farmers‘ positions.
Q: You had reiterated recently that, “tariff king” tag doesn’t befit us. Our applied tariffs are mostly low, with Q: Customs revenues being just 4% of the imported merchandise value…
We have only eight duties, inclusive of zero tariff. There have been drastic cuts in tariffs in the July (main) and February (interim) budgets. The effective tariff rates are (lower than the limits) announced in the gazette with Parliament approval, which is itself far below the WTO boundary. So, for India to be called a tariff king and so on is absolutely unjustified.
Q: Yet, there’s scope for further lowering of tariffs, without causing any harm to domestic industry…
Those are the points on which the negotiators will have to work with the country concerned. So, (our) tariff being a consideration is being addressed. Sector-specific considerations on agriculture, dairy etc. are being addressed too. Other concerns of the industry– automobile units etc. –are also being addressed with deep consultations. I will credit the commerce minister (Piyush Goyal) for having had consultation prior to, during, and after the completion of the negotiations.
Q: The US tariffs are already very low. Do you see any further reduction of duties under the bilateral trade agreement (BTA)?
For reducing duties, the US President has to go to Congress, a time-consuming process. So they may pitch in for it (duty cut), but it has to be done after the agreement.
Q: Could it be part of the broader deal, if not the interim one?
Yes, it can be.
Q: Could India offer any major relaxations to the US on the non-tariff front — IPR, data localisation, government procurement and such?
Our approach has always been that the trade negotiations should not get initiated by non-tariff concerns. Issues such as environment, gender, sustainability, carbon tax, government procurement, industrial relations, haven’t been strictly part of trade negotiations. But it’s now become a part and parcel of the whole thing, and we therefore take well-considered discreet positions.
We just can’t walk into it, because India is an emerging market, with our own market requirements. On government procurement, a lot of carve-outs have to be made, to ensure purchases from MSMEs, start-ups etc. Our domestic procurement itself is very considerate towards those sections that need hand-holding. We can’t open it up for someone without these concerns addressed.
Q: Our service exports are outpacing the world average, but concerns linger over (stagnant) merchandise shipments.
Globally, merchandise exports are actually declining. The IMF and WTO keep recasting world trade estimates, and often it’s turned out to be a downward revision. But the same agencies see India’s exports going up. Even in this adverse situation — increased geopolitical uncertainties, waning consumption, some parts of the world being probably on the verge of recession–, our exports are growing.
We need to do a lot more to boost merchandise exports. The country still suffers from many taxes (at the state and local levels) that are not fully eliminated for exporting companies. As for the Centre’s taxes, we have (achieved zero-rating for exports), and because of the Integrated GST, we know where we stand on this, with no burden imposed on exporters. But because of the (high) logistics costs, the time taken to reach the port etc., there are handicaps. These will have to be overcome.
Q: Manufacturing has ceded some share in GDP. On the one hand, automation, including use of AI and robotics, is vital for higher manufacturing efficiency and value addition, and on the other, labour market indicators aren’t keeping pace with per capita GDP.
It’s clear from the policy we announced that labour-intensive units will be given support. We have been specific that handicrafts, handmade goods, etc. will get succour. So there is no way in which we are choosing between one (labour) and the other (capital/tech). Manufacturing, whether it is employment-intensive, or requires automation, policy support will be given. But these lines are becoming thin.
Textiles & apparel, for instance, has conventionally been a labour-intensive sector, but it is being rapidly automated. A large knitwear unit in Tirupur, which used to employ, say, over 30,000 people, has now brought in AI to aid the production process, leading to increased productivity. A third of its workforce may not now be required to do what they were doing earlier. You cannot grudge that. But such units aren’t retrenching people; rather, they try to upskill them for gainful employment.
A complete recast is happening even in labour-intensive industries, to the extent that traditional labels don’t hold. Of course, despite this, there are some sectors where automation doesn’t come in so quickly; even among a section of manufacturing units and MSMEs, automation may not be an alternative they would want at this juncture. We have to have a policy for them to facilitate credit access for them. So the long and short of it is there is no longer the old watertight areas, the old silos are now opening up horizontally. Everybody has to be updating their skills, and everywhere. There is fluidity in the labour market; some are becoming movable, fungible, and others, going upwards.
Q: The sales growth of one of India’s largest FMCG companies hit the lowest level in a decade in FY25. How do you see urban slowdown and how can this be reversed?
It’s also a question of a kind of seesaw. From April, there have clearly been signs of the (positive consumer) sentiment playing out (thanks to the income tax reliefs). Sentiment is definitely turning in urban India. That you don’t need to pay tax or pay as much as you used to has actually weighed in the minds of people from a wide spectrum of vocations, including the self-employed. I think that this will actually have a (positive) impact on urban consumption.
Q: In this context, the RBI monetary policy has gone in for not just a sharp cut in policy repo rate, but a CRR cut also. This has taken many sections by surprise, because the liquidity was already there. Some would say this showed that the RBI had a sense of foreboding, and was in a desperate move to stave off a slowdown.
Now, the RBI’s front-loading in the interest of growth cannot be imputed for a knee-jerk reaction. Nor is it correct to say that the RBI is doing this, as it probably sees something which we are not. Institutions such as the RBI, which have a record of good documentation, don’t do things that way. RBI doesn’t simply undertake interest rate reduction or increase, but explains its moves in the minutes of (monetary policy meeting) in detail, and these are put out in their entirety.
Q: Investment-driven growth is inordinately delayed. Gross fixed capital formation fell to a 3-year low of 30% of the GDP in FY25, whereas the aspired rate is 35%-plus. How feasible is a broad-based investment cycle, which includes the MSMEs and other segments, rather than just the big corporate houses?
There is a buoyancy in the economy, which cannot be overstated. Had it been absent, you wouldn’t have remained where you are (in terms of growth), with institutions periodically updating their forecasts (S&P has recently revised India’s FY26 growth estimate upward to 6.5%). Or you would not have generated (consistently high) GST revenues.
In fact, today, people are using the GST to indicate how strongly the economy is moving forward. (GST receipts at over 7% of GDP seem to have crossed VAT/excise-era levels). In GST, the data is very clearly, openly laid. You see the states and sectors where it is getting collected. So the economy, in its multifarious indicators, is showing vibrancy.
Of course, we would like to have higher growth, even 10%, and we are only at 6.4% (gross value added in FY25). But it’s still 6.4% and not 2-2.5%, which is where Europe, and even some of the Southeast Asian countries, are. So I’m not gloating at this number, but to repeatedly lament it is (uncharitable) given the global scenario.
If Indians are working and moving the needle despite heavy odds, we should recognise it. Countries, which are known for exports, are no longer able to grow with such a strategy. At this time, Indian exports are doing comparatively well.
Q: Geopolitical issues have been recurrent. How is India prepared to deal with such prolonged external unpredictability?
This is something that has been repeating every year, only the context would change. After the onset of Covid pandemic, came its severe second wave, the Russia-Ukraine conflict, the US-China trade war, and then the stifling of container movements. Then, they said, it’s also a question of all the supply chains, which are getting propped up there, the China +1 networks.
So, post-2020, absolute disruption has been the norm, and it seems to be the new normal. We are getting ourselves ready for that kind of eventuality. The various government departments concerned – those dealing with fertilisers, fossil fuels, components sourcing, critical minerals etc.– have lived up to their mandate during these times. Every department is ready for any exigencies. A full drill is being done by various departments of the government of India, to deal with the concerns that might arise, and even get accentuated.
We have been actively helping industry to find newer sources of critical minerals, and explore more countries, keeping in mind the quantitative requirements, which are not invariably large.
Q: Outward FDI has more than doubled (net inflows were just $1-bn in FY25 against $10-bn in F24), but not much domestic investments are happening. What is your message to the private sector as the government cannot keep on doing the heavy lifting year after year?
If your economy is inviting FDI to come in and set up business or invest here, Indian businesses flourish. There’s nothing wrong with the exits (of the investors who had come in earlier); after all, there are people who are able to buy those investments; they invest and profits are made. If an economy is dynamic enough for people to make profit, and if the investment climate is such that exit is not difficult, I think it speaks volumes for it.
Q: But Indian companies’ investments within India are not to the extent desired. They aren’t apparently seeing sufficient demand. In this context, will the government keep on investing?
I think that is changing as well. At least in the last six months, there is a clear sign that private investments and capacity expansion are happening. The global challenges remain the same, if not aggravated. Indian industry is seeing the domestic demands in some areas, in some sectors, and investments have started. Yes, there is definitely a surplus cash with the private industries, and they’re probably earning passive income. But we can see signs of change.
Q: India emerged as a positive outlier in the World Bank’s revised global poverty estimates, with the incidence of extreme penury in the country reducing to 5.25% in 2022-23 even with new $3 poverty line. The adoption of modified mixed recall period for the Household Consumption Expenditure Survey is part-reason for this. But some cite that monthly per capita expenditure for even the middle 40-50% fractile class appears rather low.
I would want these people to look at things afresh. It’s one thing to follow a 1962 document and say poverty has to be measured in terms of how many dollars an individual earns per day. While it’s an important criteria, one must bear in mind that today, the government of India empowers the citizen in various other ways too. When free food grain reaches a very large section of people, for instance, it’s getting added to the $3 per day, being below which is termed acute poverty, or to the $5 threshold for poverty. These thresholds are assessments based on cash that a person has in her hand, and exclude the support in kind she receives, which has considerable money value. So it is important for us to understand multi-dimensional poverty and its measurements are not what the “international communism” stated earlier; it’s all taken a different form.
Q: How soon can we expect the proposed rate/slab restructuring for the Goods and Services Tax to take effect?
There is a lot of work happening in this regard. After the budget, I have spent a lot of time going into every item, looking at the rates at which they are, looking at the inversion which has come in, the layered way in which taxes are levied and so on. I’m very clear that the time has come for getting some consensus in the GST Council and coming up with a very simplified and easy-to-comply GST. We will be doing it.
Q: You mentioned about “fewer and lower GST rates”. Will the weighted average rate come down as part of the recast, rather than go up?
The expectation is that it will come down, and we are working on it. Revenue buoyancy will rise if the rates are low enough, and that leads to an expansion. GST is a well-laid-out system, where items in the VAT regime were brought in, and this (items included under GST may not need to change).
Q: The government has completed eleven years. What is your assessment of its achievements so far and when do we see the initiation of the so-called second generation of reforms?
On labour, the intent has been shown in the three labour codes that we brought in, and subsequently, states are also keenly taking it up. We will be supportive of states, and there is no going back on that. As regards logistics efficiency, which is very important for trade, a lot of activities are happening.
We are talking to the states also to improve investment climate. Otherwise, investments which were coming to some parts of the country cannot reach the other parts. We need to have efficiency also being brought in these (laggardly) areas.
A major step was taken for energy efficiency in announcing this small, medium, small modular nuclear reactors. They can be set up everywhere. With growing data centre requirements, and the Global Capability Centres, innovation is getting a fillip. India needs to ramp up its basic energy base itself, while solar and wind can always be the top-up. So, for that, the nuclear thing is getting wrapped up. The laws will also have to be amended for it, which will happen soon.
The reforms agenda also includes digitising land records. The special assistance being given to the states for capital investments has a 50% component, which is linked to reforms, and in that one of the condition is for digitising land records. Many states have come forward with land records reforms, both in urban and rural areas.
A lot of emphasis has been laid on 100 districts to enhance agricultural productivity under the Dhan Dhanya KrishiYojana. Not only will agriculture productivity, but also bringing in allied industries into that area will be part of the programme. Startups have grown into that area, with better quality seeds and drip irrigation. Residual fertilisers are not getting stuck in the land material, due to the spraying of the soil nutrients. I expect these 100 districts to become lead districts in terms of ramping up farm yield and farmers’ income, as well as cash disbursal through DBT. We are looking at different dimensions of reforms other than, of course, land and asset monetisation. We are also getting banks to be better off.
It is vital to see how the regional rural banks (RRBs) are doing; they’ve never had better days. Their capacities have been such that they are now doing as much as any scheduled commercial bank in digitisation, etc. They are able to provide net banking to their customers and take up all the government schemes in the rural areas. Other than that today, they are able to disperse credit faster than larger banks which have few and far between branches compared to the RRB spaces. So RRBs is a story to watch.
Q: Does it worry you that banks’ deposit growth is lagging?
We’ve had a very elaborate discussion with chiefs of public sector banks recently. Yes, it is recognised as a problem that CASA is not growing as much as it used to earlier, but banks are not going to stop, they need to go to the market to raise funds. But CASA was a cheap capital available. But given that we are in a downward cycle of the interest rates, how much lower interest can they give and why that should be an attraction for the customer are to be assessed. It is a tightrope walk which the banks will have to take. But even with that said, there will be some kind of attempt by the banks to improve on (deposit mobilisation). But India’s retail savings are now finding new opportunities, including greater in the stock market.