Former RBI Governor Raghuram Rajan Warns India to Tread 'Cleverly & Carefully' in US Trade Talks
On July 18, 2025, former Reserve Bank of India (RBI) Governor Raghuram Rajan cautioned India to approach trade negotiations with the United States with utmost care, particularly in the sensitive agriculture sector. Speaking to PTI Videos, Rajan, now a professor of finance at the University of Chicago Booth School, emphasized the need for "very careful and clever" strategies to protect India’s economic interests amid global trade uncertainties. His remarks come as India engages in the fifth round of negotiations for a proposed Bilateral Trade Agreement (BTA) with the US, navigating a complex landscape shaped by US tariff threats and India’s own protectionist policies.
Agriculture: A Sensitive Sector
Rajan highlighted the risks of liberalizing agricultural trade, where developed nations like the US heavily subsidize their producers. Indian farmers, often smaller and less subsidized, could face significant challenges if cheaper, subsidized foreign produce floods the market. “Unconstrained flow of agricultural products into the country may create problems for them,” Rajan noted, urging negotiators to prioritize domestic farmers’ interests. India has so far resisted US demands for duty concessions on agricultural and dairy products, a stance Rajan supports, given New Delhi’s consistent refusal to grant such concessions in free trade agreements.
Instead of opening markets to imports, Rajan proposed attracting foreign direct investment (FDI) to enhance value addition in sectors like dairy. For instance, he suggested investments in processing milk into high-value products like cheese or milk powder, which could boost Indian producers’ competitiveness without exposing them to unfair competition. “Are there things we can do, rather than necessarily saying we welcome more milk into the country from other countries?” he asked, emphasizing strategic negotiations.
Opportunities Amid Global Trade Tensions
Rajan sees a silver lining for India in the shifting global trade landscape, particularly with US President Donald Trump’s tariff policies targeting countries like China. Announced on April 2, 2025, and postponed to August 1, these tariffs include a 26% additional duty on India, alongside 50% on steel and aluminum and 25% on automobiles. Rajan believes that if US tariffs on China and other Asian nations remain higher than those on India, manufacturing could shift to India, positioning it as an alternative hub. “This would spell opportunity for India,” he said, provided the country leverages its advantages effectively.
India’s economic growth, which Rajan estimates has stabilized at 6–7% annually, may face a slight dampening effect from global tariff uncertainties. However, he views this as a manageable challenge, noting that India’s manufacturing exports to the US are relatively modest, limiting the impact of tariffs. Additionally, India’s robust services exports, which recently surpassed manufacturing in value, offer resilience against trade disruptions. Rajan earlier highlighted this strength in an April 2025 interview with India Today, noting that redirected supply chains could benefit India if it creates a predictable investment environment.
Reforming India’s Protectionist Policies
Rajan also called for India to reassess its own protectionist measures, particularly in sectors where it has competitive strengths, such as automobile manufacturing. “We produce certain kinds of cars very well, and bringing competition in the automobile sector can actually be quite beneficial,” he observed, advocating for targeted tariff reductions to enhance domestic competitiveness. He argued that reversing protectionism in areas where India has advantages could attract investment and boost exports, aligning with global supply chain shifts.
This perspective aligns with Rajan’s earlier comments in June 2025, when he urged India to seize the moment as global supply chains diversify away from China. He cautioned against over-reliance on subsidies and emphasized creating a stable, investor-friendly environment with predictable tax and policy regimes. “It could be India’s moment,” he said, but only with proactive reforms to attract FDI and support industries like electronics and automotive manufacturing.
Navigating a Complex Trade Landscape
India’s negotiating team, fresh from talks in Washington, is pushing for the removal of the 26% additional US tariff and lower duties on steel, aluminum, and autos. Rajan’s advice underscores the need for strategic concessions that protect vulnerable sectors while capitalizing on India’s strengths. He also suggested exploring broader trade relationships, including with East Asia, ASEAN, and even China, to balance India’s $99.2 billion trade deficit with the latter, as noted in a February 2025 CNBC interview.
Posts on X reflect similar sentiments, with users like @EconomicTimes and @business_today echoing Rajan’s call for careful negotiation, highlighting the potential for India to benefit from US-China trade tensions if it plays its cards right. However, these posts also underscore the urgency of addressing domestic challenges like policy predictability to attract investment.
Looking Ahead
As India navigates these high-stakes trade talks, Rajan’s insights emphasize a dual strategy: safeguarding sensitive sectors like agriculture while embracing opportunities in manufacturing and services. His call for “clever” negotiations reflects the delicate balance India must strike to protect its farmers, leverage its manufacturing potential, and position itself as a viable alternative in a restructuring global economy. With Trump’s tariff policies creating both risks and opportunities, India’s ability to reform its trade and investment climate will be critical to achieving sustainable growth.
For the latest updates on India-US trade negotiations, visit The Economic Times or The Hindu.
