Veteran economist and former Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, has called for a comprehensive overhaul of India’s tariff regime, suggesting that tariff reductions should extend across all major trading partners, not just the United States. In an in-depth interview with Moneycontrol, Ahluwalia outlined a path for India’s trade strategy, emphasizing structural reforms, deeper FTAs, and domestic competitiveness.

India’s Tariffs Are Too High for Its Own Good

Ahluwalia reiterated that India’s tariffs are “too high for our own good,” a sentiment he has long advocated. While acknowledging recent pressure from the US to lower duties, he insists that tariff reductions should be driven by India’s economic self-interest rather than external demands.

According to him, aligning with the global average and matching the openness of other developing nations would not only facilitate stronger trade relationships but also integrate India more effectively into global supply chains.

Need for Broad-Based FTAs Beyond Bilateral Deals with the US

India is in active talks with several major economic blocs and countries, including the US, EU, UK, and New Zealand. Ahluwalia advises that India should not prioritize shallow, bilateral agreements with smaller countries. Instead, the focus should be on deeper, more strategic FTAs with major economies.

“The US will only deal bilaterally, but I don’t think they will object to us offering similar terms to Europe or the UK,” he stated.

He stressed that ASEAN-style or RCEP-like multilateral FTAs would bring greater benefits, provided India takes domestic steps to make its producers globally competitive.

Integrating with Global Supply Chains Is Crucial

The target to double India-US bilateral trade to $500 billion by 2030 will require far more than agreements on paper. Ahluwalia points out that success hinges on closer integration with global and particularly US-led supply chains.

India needs to ensure free access to imported components, especially in areas like electronics manufacturing, where companies such as Apple have begun expanding exports from India.

Trade Barriers in Agriculture and Dairy Need Rethinking

While opening agriculture is a sensitive issue due to the lack of direct income support to farmers, Ahluwalia believes that tariff cuts in specific segments like fruits and nuts could be explored without harming domestic interests.

On dairy, non-tariff barriers, particularly food standards around cattle feed, remain a sticking point with the US. While such concerns are minimal with the EU, American dairy imports face significant restrictions, which India must consider how to navigate without compromising food safety standards.

India Must Prepare Its Economy for Global Trade Integration

Ahluwalia strongly argues that FTAs must be accompanied by domestic reforms in taxation, regulations, and ease of doing business.

“We opted out of RCEP mainly due to fears around competition with China. But if that’s resolved, we should apply to join CPTPP,” he asserted.

Moreover, India’s public messaging around FTAs should shift from defensive rhetoric to a more open, confident stance, signaling readiness for a level playing field globally.

Why Domestic Reforms Are Key to Export Growth

India’s stagnating export share and dwindling FDI inflows are not solely a result of global factors. According to Ahluwalia, the problem is domestic. Issues include:

• Rigid labour markets

• Distorted land and capital markets

• Burdensome regulations

• An inverted duty structure that penalizes MSMEs

These challenges disproportionately affect small and medium exporters, who form the backbone of India’s export ecosystem.

He proposes a time-bound five-year roadmap to fix these bottlenecks, giving Indian industries the confidence to operate in a low-tariff, competitive global environment.

Global Trade Turmoil: A Threat and an Opportunity

Ahluwalia warns that US-imposed tariffs, especially the 25% duties on steel and aluminium, could hurt Indian exports and slow global growth. The IMF has already downgraded US growth projections, and a global recession could follow if such protectionist policies persist.

However, he sees a silver lining. If US tariffs remain high on China, India could benefit as part of the “China+1” strategy adopted by global firms—but only if India is seen as an easier place to do business.

“Vietnam and Bangladesh have done better than us in this regard,” he noted.

Apple’s Export Success Must Be Replicated Carefully

India’s growing iPhone exports to the US are a positive sign, but success in electronics requires continued access to imported inputs. Any premature indigenization push could stifle this momentum. Ahluwalia urges a gradual development of domestic supply chains supported by an FDI-friendly ecosystem.

State Governments Must Also Take Responsibility

India’s ambition to become Viksit Bharat (Developed India) by 2047 requires a nationwide effort, not just policies at the central level. State governments must actively work to make their industries more competitive. Those who fail will see their local producers lose out even within the Indian market.

Conclusion: Reforms and FTAs Must Go Hand-in-Hand

India is at a critical juncture. As global supply chains shift and trade blocs realign, the country must adapt quickly. This means:

• Lowering tariffs across the board

• Entering deep, comprehensive FTAs

• Undertaking serious domestic reforms

• Improving business conditions for MSMEs

• Enhancing investor protection and legal frameworks

Only by doing so can India capitalize on global uncertainties and position itself as a key manufacturing and export hub

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