Former RBI Deputy Governor Viral Acharya believes that US President Donald Trump’s threats to impose higher tariffs might not be entirely bad for India. According to him, these pressures are pushing India to lower trade barriers, which could enhance competition and drive economic growth. Acharya argues that increased competition will force Indian companies to improve their standards to compete globally, leading to better-quality jobs and a stronger manufacturing sector.

Trump has warned that starting April 2, the US will impose reciprocal tariffs—matching the import taxes that trading partners impose on American goods. Since India has significantly higher import duties compared to the US, economists predict it could be one of the hardest-hit nations. However, the Indian government has already begun reducing tariffs, cutting duties in February and discussing further reductions on American imports like cars, chemicals, and electronics. Commerce Minister Piyush Goyal recently met with US officials, including Howard Lutnick, to negotiate a broader trade agreement, and Trump has suggested that India is willing to make deeper tariff cuts.

Acharya, who served as RBI Deputy Governor from 2017 to 2019, acknowledges that large Indian firms benefiting from protectionist policies might initially lose value. Still, he believes the overall economy will gain in the long run. He asserts that in a truly competitive market, companies should not make excessive profits unless they are the most efficient providers. He also points out that Indian businesses—big and small—have the potential to compete globally, but they need to invest in efficiency and productivity. “Unless we expose them to real competition, we won’t see their full potential,” he remarked.

Breaking Up India’s Business Giants: Currently a professor at NYU Stern School of Business, Acharya has previously advocated for breaking up India’s largest conglomerates. In a 2023 research paper, he argued that the “Big 5” firms—Reliance, Tata, Aditya Birla, Adani, and Bharti Telecom—have grown at the cost of smaller businesses, largely due to India’s high tariffs, which have shielded them from global competition.

He believes Indian firms are innovative and capable of thriving under pressure, and that increased global competition could lead to knowledge sharing and strategic partnerships. Over time, this could help create global Indian giants. To ease the transition, Acharya suggests lowering tariffs in phases with clear communication, allowing businesses time to adapt by investing in efficiency, innovation, and workforce upskilling.

Prime Minister Narendra Modi has also encouraged Indian businesses to seize global opportunities and invest more, calling the current economic shifts a “big opportunity.” While some worry that reducing trade barriers could lead to job losses, Acharya dismisses these concerns, pointing out that India’s liberalization in the 1990s and 2000s did not result in mass unemployment.

Instead, he argues, greater competition will encourage private sector investment, boost productivity, and create more high-skilled jobs, ultimately increasing domestic consumption. “This is the kind of transformation India needs right now,” he said. “It’s simply a modern version of what worked for us in the 1990s and 2000s.”

Disclaimer: This image is taken from Bloomberg.