'Anything between 10–20%...': Raghuram Rajan on what would be ideal US tariffs for India

Former RBI Governor Raghuram Rajan has said that India should target a 10-20% tariff range in its trade negotiations with the United States, but has warned against making "onerous" commitments similar to those agreed by Japan, and others. He said while the developed economies have secured lower tariff levels, India’s priority must be to stay competitive relative to its peers in East and South Asia.

"Zero would be great," Rajan said in an interview with DeKoder when asked what would be an acceptable tariff level for India in its negotiations with Washington. "But we should not be hampered relative to our competitors. And if you look at most of East Asia and South Asia, the deal that seems to be emerging is 19%. Many of them have come away with that. Now developed countries - Europe, Japan - have come away with 15%, and Singapore has 10."

Rajan said India should aim to fall within that range while avoiding promises that could strain its economy. "Anything in that range, 10 to 20, would be great. What is important is that we don't make commitments that are onerous and hard for us to deliver on," he said. "Japan and the Euro area have made commitments on huge investments in which the promise is that many of the returns from that investment will go to the US. I don't see how they will deliver on that without compromising their economies hugely."

The noted economist added that some of those countries might be counting on renegotiating later, but warned that such short-term tactics were risky. "Maybe they think this is just talk or they can last while the current administration is in place and renegotiate after. But I don't think it's wise to make those kinds of commitments to get a better deal," he said.

The former governor described the escalating tariff measures as a "very big issue" for Indian exporters, particularly in labour-intensive sectors like textiles, which are already losing seasonal business in the United States due to import disruptions. "Some of our textile manufacturers are selling to big US stores and chains. If that gets disrupted and they find new sources of supply, it may be harder to recover those," he cautioned.

Rajan stressed that India must act swiftly to protect its position in the global supply chain. "It’s extremely important for India that our tariffs be brought down quickly, especially in these areas where we have labour-intensive industry which has made a certain amount of headway into the US," he said.