India could learn much from the complaints of its trade partners
Summary
There is vast scope for productivity enhancement in the economy if we pick up the right lessons from today’s trade stand-off with the US. An important lesson has to do with the delays that are endemic to India. Resolving these could spell significant gains.
Even before the US paused its Liberation Day tariffs for three months until 9 July, it was clear that those levies would have to be periodically updated since they were based on annual (flow) data. Any country on the high-tariff list can reduce its bilateral trade surplus with the US and demand a recalibration of its tariff.
It is important to remember this, because long-term export strategies based on the comparative advantage we might temporarily enjoy vis-a-vis Malaysia or Vietnam, just because they were charged higher tariffs in the first round, could come to grief. Even China has been promised a tariff drop from 145% (the 245% number is just for one or two products for which the new levy was added on to a pre-existing 100% tariff).
The promise for China is in the 50-65% range, probably in response to Chinese restrictions on the export of rare earth elements (essential in the manufacture of magnets and much else).
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India and the US are working on a bilateral trade agreement (BTA). There will be an initial focus on agricultural trade, where the tariff disparity is staringly wide, but not much more is known about the contours of the BTA other than that it will be in two phases.
Tariff concessions will be the principal focus of the BTA, but non-tariff access barriers are also very much on the table. It is these that we can learn valuable lessons from, because much of what hampers access for trade partners can work to hobble the domestic economy as well. There is enormous scope for productivity enhancement in the economy as a whole if we learn the right lessons from the trade stand-off.
Take for example what from an Indian perspective is non-negotiable: India’s ban on the import of commercial feed for animals, like milch cattle, which carries ingredients of animal origin like bone meal.
To quote from the 2025 National Trade Estimate Report (31 March) of the US Trade Representative (page 202): “In addition, unclear jurisdiction for the approval process for animal feed continues to complicate the process. For example, in December 2019, the [Food Safety and Standards Authority of India] published Direction I-95, announcing new requirements for commercial animal feeds and feed materials that are manufactured, imported, or distributed in India. Prior to the publication of Direction I-95, however, the FSSAI had not regulated the manufacture, import, or distribution of either commercial animal feeds or feed ingredients in India. India indicated it would issue an administrative order to clarify the formal regulatory authority of animal feed in 2024; however, as of December 31, 2024, the orders were yet to be issued."
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The paragraph, if it is accurate, says the ban came into effect for the first time in December 2019, which is surprisingly recent for an issue of such great social importance in India. It points out that the ban did not lie within the FSSAI’s remit. Further, India’s promise of a clarification at that time is an admission of the need for a formal regulatory authority, either through expanding the FSSAI’s remit or setting up another regulator for animal feed. Finally, the paragraph highlights a familiar story —to wit that five years later, the regulatory clarification promised had still not happened.
Delays, delays. I have written before on delays which plague the Indian system, principally on payment delays within the fiscal arena. There are also approval delays, response delays, you-name-it delays. Commercial delays may be reduced by Adam Smithian competition, but public institutions have no competition. The applicant is at their mercy.
Exam dates are postponed. Jobs are promised but no appointment letter follows. Arterial road repairs are begun and then indefinitely delayed. Road repairs may destroy underground water and sewage pipes, or phone and internet lines, whose restoration can get indefinitely delayed. Commercial activity, whether for export or a domestic market, can only become more productive if the public infrastructure parameters within which it functions are known and do not hang in limbo.
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The landmark Supreme Court ruling that prescribes time deadlines within which state governors must deliver their response to state legislation passed and awaiting notification is a massive step in the right direction. Practically every state has experienced periods during which duly passed legislation awaited the governor’s assent for years. The Supreme Court’s ruling serves to uphold the paramount importance of elected bodies like state legislatures. It does not undermine those institutions in any way.
The Constitutional provision for Finance Commissions has over the years performed a sterling role in safeguarding the statutory sharing of fiscal resources between the Centre and states from politically-induced delays. The standard operating procedure for these statutory flows ensures that funds flow from the Centre simultaneously on known dates to all states in amounts that are formulaic and not discretionary.
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These provisions have preserved the Indian federation and thereby the size and heft of the Indian economy. The 16th Finance Commission is now in session, but a member has resigned and is yet to be replaced. It is vital that this vacancy be filled without delay for the commission to function at full strength, as prescribed under Article 280 of the Indian Constitution.
The author is an economist.
