President Donald Trump has been cranking up the pressure on India, a country the US has courted as a strategic counterweight against China. Trump has announced a 50 per cent tariff on the country, a higher rate than many other major economies in Asia. His message to India is clear: Stop buying Russian oil.
This raises a crucial question: Can India afford to stop buying Russian oil? As per former Reserve Bank of India (RBI) Governor Raghuram Rajan, “It wouldn’t be a disaster for India”, but he pointed to a “bigger issue” that might be of concern.
“Stopping purchases of Russian oil wouldn’t be a disaster for India, since current prices aren’t much higher than for Russian crude.” If Russian oil were cut off entirely, prices would rise, but India could handle that, he stated in an interview with International Valor.
The bigger issue is “political: an overt public decision to stop buying from Russia would be seen domestically as bowing to U.S. pressure, which plays badly in any democracy.”
If Washington had quietly asked India to phase out Russian oil, it might have been acceptable, the former RBI Governor said. “Making it public, and tying it to a tariff threat makes it much harder politically.”
On trade, there are many areas where liberalisation would be good for India, he stated adding that lowering tariffs can help our economy.
“But, it’s hard to negotiate with a gun to your head. I hope that tempers cool and talks resume, because a 50 per cent tariff is unsustainable—not just for India, but also for the U.S., which risks alienating a country it hopes will be a strategic partner. People remember these things for a long time, and turning them away is rarely smart geopolitics.”
Although a deal is still possible to avoid the higher rate, Trump’s recent barrage against India has quickly damaged ties with a nation that successive administrations have sought to court as a counterweight to China. He’s called India’s economy “dead,” its tariff barriers “obnoxious” and its people indifferent to the plight of Ukrainians — adding to tensions after Trump angered India by claiming to have brokered peace with Pakistan earlier this year.
The Indian government has fired back at Trump’s tariff threats, saying the purchases are necessary for the nation’s energy security and has blasted Trump for singling out India when other countries are also buying Russian oil.
“We reiterate that these actions are unfair, unjustified and unreasonable,” a spokesperson for the Ministry of External Affairs said in a statement. “India will take all actions necessary to protect its national interests.”
If implemented, the higher rates would be a further hit to India’s economy. Bloomberg Economics estimated that a 50 per cent tariff may cut US-bound exports by 60%, putting 0.9 per cent of gross domestic product at risk. It would particularly hit labor-intensive industries such as gems and jewelry, textiles, footwear, carpets and agricultural goods.
While India is still open to talks, Trump’s tariff threats are eroding goodwill and risk prompting India to shift closer to Russia and China. Prime Minister Modi is planning to visit China later this month for the first time in more than seven years.
