'This could be India's moment': Raghuram Rajan calls for predictable policy amid global supply chain reset

India could witness a surge in foreign investment if it creates a more predictable and welcoming environment for global manufacturers, former Reserve Bank of India Governor Raghuram Rajan said on Sunday. He said it could be India's moment as global supply chains are being re-evaluated and restructured in the post-pandemic and post-China-dominant era.

"Well, it could be India's moment. All supply chains are being reinvestigated by the firms that run them. And if India can put out the red carpet and say - we will have predictable tax and policy regime, we will allow you to also produce for the domestic market and don't worry about the pushback from Indian industry which feels threatened, we will make sure these policies are in place for the foreseeable future. It could result in a significant increase in foreign direct investment,” Rajan said while speaking to CNBC-TV18 on Sunday. 

Of course, the former governor added, industrial countries don't want to see supply chains moving from China to India and not coming back into the domestic market. "But if India plays its cards well and doesn't make it front and center all about subsidies - that it is about a better production environment and it offers a very viable alternative and some of the states in India are very interested in doing this. If we we can do that it could be India's moment. But a lot more action is needed." 

Rajan cautioned that action must be proactive and consistent. "It has to be proactive, not just reactive. It is about creating a better environment in India for foreign direct investment—something we haven't paid enough attention to in the last few years,” he said.

The comments come at a time when US President Donald Trump has issued a strong warning to Apple over its plans to expand manufacturing in India. Trump said that while Apple may set up factories in India, it would face tariffs if the products were sold in the United States. "That’s okay to go to India, but you’re not going to sell here without tariffs,” Trump said last month, during the signing of executive orders on nuclear power. Trump also reiterated his stance on social media, writing, “If that is not the case, a Tariff of at least 25 per cent must be paid by Apple to the US."

When asked about the implications of Trump's warnings to Apple, Rajan said, "It would be the rare CEO who wants to cross the Trump administration at this point. But there is room for negotiation.” He suggested that Apple and similar firms would need to make the case for low-cost overseas manufacturing while highlighting the R&D and intellectual property contributions they continue to make in the US.

"There is a lot of value to flying under the radar screen at this point,” Rajan added, advising companies to navigate policy tensions carefully without overly publicising their diversification away from China.

On the subject of bilateral trade deals, Rajan said it was unfortunate that no major multilateral trade framework is currently in play. However, he said bilateral deals — such as India’s proposed agreement with the US—could generate momentum. “These bilateral deals are really interim arrangements. Actual trade deals take a much longer time to negotiate,” he said.

He added, “I do hope that bringing down tariffs with respect to the US gives the impetus for India to bring down tariffs more generally and thereby reintegrating itself in global supply chains which it has missed out on.”

According to Rajan, this could be a key moment for India, but success will depend on whether the country uses the opportunity to make its industries more globally competitive rather than simply protecting them.