Indian Markets Battle Tariff Headwinds
The stock markets stood strong against a tariff onslaught on Thursday even as policy makers and businesses tried to make sense of the impact of US tariffs
On Episode 548 of The Core Report, financial journalist Govindraj Ethiraj talks to Shankkar Aiyar, Politics Economy Analyst & Author, Ajay Srivastava, Founder at Global Trade Research Initiative and Dr Viranchi Shah, Former National President and Spokesperson at the Indian Drug Manufacturer Association.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Indian markets battle tariff headwinds even as US markets see $1.75 trillion rout
(04:37) Gold prices hit fresh highs on tariff announcements and fresh bouts of uncertainty
(05:26) Oil prices fall below $70 a barrel, output to go up further
(06:50) Decoding the impact of tariffs on India and piecing together what its strategy should be
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday the 4th of April and this is Govind Rajat Sriraj, headquartered in Broadcasting and Streaming from Mumbai, India's financial capital.
Our top stories and themes and this is the day after the Liberation Day, which is the day President Donald Trump announced tariffs on a host of countries and more on that shortly. The top stories now-
Indian markets battle tariff headwinds even as global markets sink
Gold prices hit fresh highs on tariff announcements and fresh bouts of uncertainty
Oil prices fall below $70 a barrel and output is to go up further, good news for India
And decoding the impact of tariffs on India and piecing together what India's strategy should be going forward.
The Markets Hold Out
It cheers up a strong domestic economy, which is not to say we should not be integrated with a global economy, but there are times you have to thank ourselves for being a large domestic economy. Indian stock markets stood strong against a tariff onslaught on Thursday, even as policymakers and businesses tried to make sense of the impact of U.S. tariffs on Indian exports and where it could go from here as bilateral trade discussions started. The Trump administration has indicated that this is really the starting point at the bottom and India and other countries can now arrive at some meeting point.
They've also indicated that if you were to retaliate, then they could take up tariffs further. Remember, India has been hit by a 27% sweeping tariff with some exceptions, of course, and we'll come to that. Pharmaceutical and textile stocks did well for different reasons, which also highlights the intricacies of trade policy.
Then that's something we don't think about or encounter on a daily basis unless we're part of that industry that is facing it. So the pharmaceutical industry is relieved because they are exempt from tariffs and textiles is relieved because India has a competitive advantage now because tariffs on India are lower than rivals like Bangladesh and Vietnam and more on that shortly. So on the last day, the Sensex and Nifty were down and they closed lower with a 30 share Sensex closing down 322 points at 76,295 and the Nifty 50 closing down 82 points at 23,250.
IT stocks did badly because of fear of recession in the United States while pharmaceutical stocks, as we said, did well. Indian markets or rather their performance have to be seen in the context of markets elsewhere. Global markets broadly sank on Thursday, including China, Thailand and Vietnam because most of them and Vietnam were much lower.
But the biggest hit in some ways, at least when it comes to stock markets, were to the US markets themselves. The US futures were trading sharply all through Thursday, India time and towards evening, the Dow Jones opened with more than a thousand point fall at start of trade. Bloomberg pointed out that some $1.7 trillion was erased from the Standard & Poor's 500 index at the start of trading, thanks to worries that President Donald Trump's sweeping new round of tariffs could plunge the economy into recession, adding that the hit was hardest on companies whose supply chains were most dependent on overseas manufacturing. Apple, for example, which makes the majority of its US-sold devices in China, was down about 8%, Lululemon, Athletica and Nike, being companies with manufacturing ties to Vietnam, were down about 10%, Walmart and Dollar Tree were also trading lower by about 2% and 11% said Bloomberg. The interesting development this time is that India or other markets are not tracking Wall Street because the US has clearly and evidently developed a local economic problem or challenge because of an expected or projected recession. There has already been some discussion of funds moving out of the US into other markets which seem more stable and a sense of a stronger domestic economy, which of course is the build that India fits.
Now, whether it flows from the US specifically or not, Indian markets appear to be slightly better poised than they were even a few weeks ago, despite the economy yet to pick up strength after the slowdown in corporate earnings in the last few quarters. And foreign institutional investors who are driving many of these swings are largely back. Remember, they're also investing in bonds apart from equities.
On the other hand, the important developments of Thursday are oil prices which are soft again, having gone below $70 a barrel and more on that shortly. And there is considerable liquidity in the Indian system with an interest rate cut most likely around the corner, which could add even more liquidity. So things are not looking that bad, at least right now.
Gold Hits Fresh Record And Then Retreats
Gold prices dipped on Thursday after traders booked profits after prices hit a record high thanks to more safe haven buying triggered by the developments in the United States and the announcements of those status spot gold hit an all time high of $3,167 per ounce and then was down to about $3,122 thanks to that profit booking. Meanwhile, the rupee closed modestly stronger on Thursday thanks to a broadly weaker dollar, something that's likely to remain the case for some time now. In addition to inflows, according to Reuters, which also added that the rupee closed at Rs 85.43 against the dollar compared to Rs 85.49 in the previous session.
Oil Slides Further
Good news for India as oil prices are set to stay low for some time. Oil declined below $70 a barrel thanks to the combined impact of a decision by the Organisation of Petroleum Exporting Countries Plus Group to speed up its unwinding of oil output cuts in May and United States President Trump's announcement of new tariffs on Wednesday. So a double whammy, if you want to call it that. Brent crude was on course to its worst percentage drop since August 1, 2022, according to Reuters.
Eight OPEC Plus countries have agreed to advance their plan for oil output hikes, which means they'll hike faster than before and are now aiming to return to about 411,000 barrels per day to the market in May from about $135,000 per barrel per day initially planned. The group agreed in the minister's meeting on Thursday, according to Reuters. Analysts also told Reuters that the first recession and demand fears driven by Trump's tariff bazooka and now the prospect for rising supply from OPEC Plus and crude has seen a two-day slump, retracing more than half of what was gained during the previous month.
The belief in the energy market is that Trump tariffs will escalate a global trade war, curtail economic growth and thus limit demand for fuel. Imports of oil, gas and refined products are, however, exempted from the latest round of tariffs, according to the White House on Wednesday.
Decoding India's Tariff Response
Eyes are now on what will happen as countries start to retaliate or settle into bilateral trade negotiations as India clearly will. Countries like China have already threatened to retaliate, along with the European Union. On the other hand, the big medium-term question is how will the U.S. economy behave here on, or more specifically, how will U.S. consumers consume here on, given the fact that they will be paying much more for a host of products. India's pharmaceutical sector has escaped the tariff hit completely, and apparel has been rewarded with a tariff rate that's lower than what its rivals have to face, which obviously changes things a little.
The Clothing Manufacturers Association of India said that on the face of it, these tariffs were a huge opportunity. They've been pointing to the 10-12% duty relief for Bangladesh in the EU markets, thanks to which Bangladesh has raced ahead in the EU. So for the same product that goes from Bangladesh or India, Bangladesh is able to export to the EU at a 10% or so lower tariff than compared to India, which obviously gives it an advantage.
What the CMAI says is that India will have a similar, if not greater, advantage now in the U.S. market. They also said that while the industry must move to take advantage of this gap, if it does not, it will miss the bus of opportunity provided to the industry. Similar viewpoints were echoed by other industries like electronics.
The Indian Cellular and Electronics Association, or ICEA, said that a bilateral trade agreement must now become the cornerstone of our trade strategy, unblocking stable market access, tariff predictability, and a framework for scaling high-value electronics exports. As we await possible retaliatory moves from other major economies, our deepest focus must remain on converting this strategic opening into a sustained export growth and supply chain integration, according to the India Cellular and Electronics Association, or ICEA. So let's see.
The CMAI did say that India must be on guard, which obviously applies to other industries as well, and this is because countries like Bangladesh and Vietnam facing higher tariffs in the U.S. will intensify their focus on alternative markets like the EU, UK, and Australia, which will make or rather give Indian exports more competition. Equally, many of these countries could target the Indian domestic market more aggressively, increasing competitive pressures on Indian players. We've seen this happen in areas like steel, where steel has been exported to India at pretty low prices, one reason being that steel demand in China has fallen, and at least Indian manufacturers have said that China was running factories, or rather manufacturing steel, but only to keep the factories running, and therefore at very low or even subsidised cost of production.
So what applies to garments could apply to many other industries, including the example of steel I just gave you. So back to the way forward. I reached out to Dr. Viranchi Shah, former president of the Indian Drug Manufacturers Association and spokesperson, now Shankar Iyer, well-known economic journalist and author, and Ajay Srivastava, founder of the Global Trade Research Institute.
PANEL DISCUSSION TRANSCRIPT
Govindraj Ethiraj: Thank you very much for joining me, Dr. Shah, Ajay Srivastava, and Shankar Iyer. So the idea is to look at the impact of the latest tariff announcements that we've seen, which is of course the first clear step of how things are going or likely to go now, and the idea is to understand what sectors could be affected more and not, and more importantly, what should be or how should be India's policy response, both at a specific level as well as at a country level. So let me begin with you, Mr. Srivastava. So what's your sense, now having seen this, obviously as someone who studied this closely, how are you reading these 27% tariffs and the impact of it as things stand?
Ajay Srivastava: The first thing that hit me was that 27%, he says it's 54%. India charges 54% equivalent to tariffs and other barriers on US goods. When we calculated, it's less than 8%.
So this figure is totally out of the hat, there is no justification. People are trying to find the justification, there is no justification. And what worries me, he is giving favour to us by charging us half of that, that is at the rate of 27%.
So that means, if I'm an investor, I want to see India as a great place for investing. I have to wait. Tomorrow, if he says, no, no, this is 54%, I want to increase from 27% to 40% or 50% or 50%.
So that's the biggest worry in the minds of the investors right now. What's the real tariff? What was the need for talking about 54%?
It's out of the hat. So 27%, I need one statement that 27% will stay for one year, two years, four years. I don't know, next month is coming.
So for investors, that's the biggest worry. Having said that, these will hit us hard. These will be over and above the existing MFN tariffs.
So the US has already prevailing tariffs, for example, on shirts, it's 12% to 18% on shoes, with 30% or more. So these 25% will be over and above existing tariffs. So it will be hurting us.
The only consolation for us or any other country is that it's a relative disadvantage. So he's charging more on China, 54% on China plus MFN tariffs, and he's charging 37% plus MFN tariffs. Okay, we are slightly better off than China.
Can I seek my competitive advantage based on that? He's charging more on even poor Bangladesh. So can I try to benefit from that?
But benefiting from that will require investors' confidence to invest in that sector. And for that requires stability. He wants assurance from someone that tariffs will stay, this relative position will not change.
So that's how I see this.
Govindraj Ethiraj: So you're saying don't build a business case based on the tariff announcements that we've seen. Okay, Dr. Shah, let me come to you. You know, when I spoke to you, I think about a month ago, and I'd asked you pretty much the same question about the impact of tariffs.
You had said that it is very unlikely or it was less likely that the US would put tariffs on imports of pharmaceuticals, because it's very price sensitive, and it would affect the very people who elected him. How are you seeing it now?
Dr Viranchi Shah: So it's a sigh of relief that pharmaceuticals continue to be at 0%. Before the entire episode started, we were at zero and we remained at zero. It's a very welcome step.
I would appreciate the officials or whoever negotiated from the Indian government side for having been able to execute it so well in the sense that it was a US decision that prompted all these changes. And as India, I understand we would do our best to see that our interests are protected in that way. Pharmaceuticals have been kept out.
I would also appreciate people who were a part of our negotiation. In terms of the industry, I think the biggest signal that goes to the world is that pharmaceuticals is a sector. Just before these things came into picture, a lot of buzz was happening about de-globalisation and the industry getting localised in certain markets and all.
I think this also clearly puts a full stop to those thoughts that pharmaceuticals should continue the supply chain the way it is. And India is currently supplying essential drugs to almost 192 countries. So it's a big positive gain for us.
Govindraj Ethiraj: Right. And is there a guarantee? I mean, I'm just picking off on the other side of what Mr. Srivastava said that there is no clear indication on where tariffs could go, at least for those who are getting hurt. Now, this is the reverse, as in at this point, you're looking at zero, but that zero applies to any pharmaceutical manufacturer, whether it's India or China. So my question really is, what is the certainty that the industry has? And if it does not have certainty, what then?
Dr Viranchi Shah: We live in a volatile world, so there are no certainties about anything. Let be about tariffs for anything, there are no certainties for sure. But as long as it remains zero, for example, the current position, you must understand that the U.S. is the largest market for Indian pharmaceuticals outside India. So after our total exports, almost 32 percent, which is close to $9 billion of exports of pharmaceuticals happened to the U.S. But if you look at it from the U.S. side, and I think we also discussed this earlier, if you look from the U.S. side, it imports almost $160 billion worth of pharmaceuticals, out of which India is about 6 percent, 9 billion is approximately 6 percent. But in terms of the volume, we contribute to almost 47 percent of their generics. So I would put it this way that our contribution to society in bringing down the cost of treatment is remarkable.
And we hope that therefore, and especially post-COVID, all the governments really understand or appreciate the importance of not only pharma, but the entire healthcare space. So that we will continue to be seen as a little different in terms of our contribution and let's hope for the best.
Govindraj Ethiraj: Right. Okay. I'm going to come to the cost of production in a moment.
Shankar, one of the questions that obviously one had is the U.S. side. So let's assume tariffs are high and they will remain so for some time till maybe they're negotiated down. What's your sense on how the U.S. economy will be able to bear the brunt of it, at least from your initial reading?
Shankkar Aiyar: Well, unless people stop importing goods, I don't think the U.S. economy can absorb this kind of tariff because by one calculation, it's some $7 trillion in 10 years or some such weight number has been put out. And it's very simple. I mean, if iPhones are to be exported from India, which are made here, they now have the double disadvantage of having been partly made in China and partly made in India.
So the components come from China. So whichever way you look at it, a 25% increase in prices in an economy that is worried about stagflation, inflation, recession, all that, I don't think that they have thought this through that deep. I think what they expect, what the Trump administration expects is that you will go back to them and say, OK, we are going to make some open decisions like the withdrawal of the Google tax, change in non-tariff barriers and allow more of their goods.
I mean, they are seeking an entry into the agricultural market, which is sort of very dicey for them. I don't think by any assessment the U.S. economy can absorb this kind of price rise, not unless there is a fiscal shift, which is basically Trump parallel, announcers in parallel, a host of tax cuts which made this affordable for them. So a 25% tax cut would sort of go well beyond the $400 billion number that people are talking about.
I don't think the U.S. economy, this is way out of line, this argument that the U.S. economy can absorb this. I mean, you know, just the fact that automobiles will be a double whammy from Canada, Mexico, India and Europe. You look at other goods, the same story.
And other countries are not going to sit tight. Newton's law is going to play out. So I'm worried that actually the Trump thing, he's demonetising the global trading system in a way that has not been tried before.
Govindraj Ethiraj: Right. OK. And I'm going to come back to the political economy part of it, because that really will maybe help us understand how India is going to approach it.
I'm going to come back to you on cost, Dr. Shah. So, you know, one of the reasons maybe why pharmaceuticals have been left untouched for now is that the cost differential is so high that it is perhaps challenging or next to impossible at this point for manufacturing to move to America. But could it also be the case that really this is a matter of time that the U.S. will continue to find ways of bringing manufacturing back, including in pharmaceuticals? And that could obviously change things. So what are the advantages that we really enjoy as India or China apart from cost?
Dr Viranchi Shah: I don't know what went into their minds in making this decision, but I can at least tell you that there is a substantial cost difference in converting, let's say, a thousand tablets from an API in India as compared to the cost of doing the same thing with the same people, with the same set of equipments in the U.S. It's a very different cost. But apart from that, if you look at pharmaceuticals as more specifically medicines for human use, now what happens is that even within India, for example, a company A wants to set up a new facility to supply to the U.S., they are having a facility A and now they are setting up a facility B. The usual timeline is between three to five years to apply to the U.S., for example, for the site clearance, for the dozier clearance and get an approval. It's a long process. So even if you forget the tariffs, if a company A who is operating in the U.S. wants to set up either in the U.S. or in India a facility to manufacture the same product, it takes time. Because these are all products that are directly used by humans for life and these are life-saving drugs and essential medicines.
So therefore, even if something happens, any transition takes time. You cannot just switch apart from the cost difference.
Govindraj Ethiraj: What's the cost? Like you used the example of a thousand capsule conversion. What's the cost difference roughly?
Dr Viranchi Shah: One of the statistics that I'm aware of is of a company, a U.S. company also having plants in India. Their cost of converting a thousand units, let's say thousand tablets in India is close to four and a half, five dollars while doing the same thing in the U.S. is in excess of thirty dollars. So this is the kind of difference we are talking about in terms of cost of conversion.
Govindraj Ethiraj: So let's look ahead now. Mr. Srivastava, so the next step is clearly to now move to the negotiating table for India and for other countries. How could India or should India be moving forward given the fact that we seem to have done a lot of things in the last few weeks but none of that has worked?
Ajay Srivastava: Two things are there. One is negotiating with the U.S.A. I consider other countries are very very lucky that with this Trump tariff, their ordeal with Trump is almost over for some time till he comes with something else. But we are not so lucky.
We have to deal with him on the negotiating table while doing our FTA and that will be not only tariffs but at least 20 more subjects where the U.S. is very very demanding. They want us to open our agriculture. They want to dilute whatever is remaining of the digital laws.
They want us to patent laws and they have demands on every single domestic regulation of our country. It's going to be very very tough for us. So my sense is that what's the need for negotiating this FTA?
He imposed his tariff. He didn't wait for FTAs to conclude even though we started doing the FTA. They do what they do.
So we say okay you impose your tariff, fine. We are done with you for some time. Let's stop the story here.
No more negotiations, else it will come with a lot of demands on us. They are very sensitive politically, economically and I don't see any merit.
Govindraj Ethiraj: I wanted to ask you for any example that you can relate to most from your time in the DGFT. But you know for example some of the factors that you talked about are really non-tariff barriers and most of the discussion at least as we are seeing right now is tariffs. So how do you pick up one example from here and match it off to another example there?
Ajay Srivastava: I'm very happy you're asking this. You know what a non-tariff barrier is? Tariff we can see the barrier 7 percent, 70 percent, 100 percent.
What is a non-tariff barrier for you? Maybe a necessary thing for me, a safety thing for me. One example.
So the US says that India restricts the import of dairy products on the condition that for example if I'm talking about butter, the butter that comes from the cow, that cow should not be fed with the meat or blood or internal organs of another living cow. My god it's cultural sensitivity for us. And they have published this using some sophisticated words that India is unreasonable, this is against the international norms, they will never understand our sensitivities on all these things.
When I talk to some of the friends who have more open thinking than I do, they say what's the problem? You allow that on the bottle or on the package you write it contains and leave it to the consumers. So I say the non-tariff barrier is something where both sides look at the same thing from very very different angles.
This is one example, we have several examples. For example MSP, our minimum price support scheme. We see it is necessary for the livelihood survival of 700 million farmers.
They feel it's distorting world trade. We say agriculture is not a way of life for us, it is not a trade issue for us. So even trade be damned for most of the basic health products, we will not open because you know then we open our culture for vulnerable cycles.
Cheaper cycles will bring cheaper wheat and rice through five top commodity traders and they will destroy our farmers. And the higher expensive cycles by the time a farmer will stop cultivating the grain and then an expensive cycle will come and then everybody will have inflation problems. So things that they call non-tariff barriers for us may be very desirable protections.
All these things have to be discussed in an FTA.
Govindraj Ethiraj: Yeah right so I mean eventually it will come down to that number that we have to agree on but I'll come back to you in a moment. Shankar you know so a lot of this on the negotiating table since that's the next step will depend on how the government is viewing in this viewing this whole issue how much it wants to protect whom and what is the let's say the willpower or the political will or the economic will it has to carry this through. What's your reading at this point?
Shankkar Aiyar: Very simply whichever government is in power will not let go or allow the entry of trade into agriculture, dairy products. These are all sacred cows in more ways than one. Imagine the factories that will be created if they allow milk or dairy products and you know one tweet by Amol will do the job.
I mean that's the kind of goodwill that but in terms of the possibilities for instance Suzuki makes more cars of this size in India than elsewhere. Automobiles are reasonably well placed to deal with tariffs. Clearly they can deal with some of the tariff.
What I hear from the ground from the market players and exporters is that some companies in the U.S. have already agreed with their engine suppliers that you take up the cost. We will take up the cost. Let's see how it plays out. So that's a different story where there is a margin. Now you come to pharma there might be a margin but that will actually increase their costs in the healthcare where they are and the U.S. has a very complicated healthcare system. When you asked earlier whether the U.S. can afford this kind of thing this is 68 percent of the exports which will have an average tariff of 23 percent. We expect this to reach around 600 billion dollars. Even a 30 trillion dollar government, 30 trillion dollar economy cannot sustain a 600 billion dollar jump in prices.
So what is India's story? We have to find what they are dependent on. Do we have something that they are dependent on?
Like the low cost low-tech consumer items from China they're dependent on because half of their home of small enterprises will shut down. Are they dependent on electricity like they are with hydroelectric electricity from Canada? Are they dependent on oil?
Something like that. So whatever we say I mean you know I mean we have given them some lollipop saying that we'll double the trade which I think must have been said Mr. Srivastava might bear me out at least three times in the last 10 years. So this is a story but the size of the economy has to be able to absorb that kind of trade and unless we have a new idea, new innovation, new something you know.
So I don't know what is the route that they have, maybe we will agree to buy some more LNG. Then you have to see how many LNG stations are there and whether we are able to land the energy. Then you might say that we will buy defence equipment.
We buy the F-35 . They will tell us who to shoot, not to shoot. They will come into law. They actually want to legislate regulation in India.
So one of the schemes we have is that they're collecting data on financial transactions from many around the NPCI model and to make it available for others to sort of deliver credit. They have objected to it. They say this violates privacy and they will be shut out of this system.
So this is a kind of very tough situation. I remember telling you the other day that I am surprised at how sanguine people in India are about this trade thing. Yeah we have a relatively small export basket but that doesn't mean that we have and the interconnectedness of this global is very important.
We get APIs from China. We make generic drugs here and then we sell them to the US. We get electrical electronic components from Korea, Japan and China and then we sell them to the US.
All of these countries are under tariff on the major big time targets. So there is what do you sort of negotiate on the table and I am still sort of considering that you know India must be having some trump card pardon the pun to negotiate the FTA because the FTA itself is a very stodgy area now and you know there must be a reason why the FTAs with EU is not happening. The FTAs with Australia are not happening.
Or rather the Australia struggle with the ones with the UK is not happening and it all comes down to two factors: mobility of labour and agriculture.
Govindraj Ethiraj: Got it. Dr Shah you know we've of course I mean the pharmaceutical industry has escaped this time but we don't know what the future will bring. My question is what is the industry or what could the industry do today to protect itself in future so that tomorrow if things change or some other development happens we are not as a country hit by such tariffs at least in industries like pharmaceuticals.
Dr Viranchi Shah: My personal sense is and I am repeating this that our contribution to the US healthcare system has been wonderful in terms of bringing down their cost of healthcare. If probably they considered to review their stand on the pharmaceutical industry and this is my personal assessment they would start with drugs which are really expensive which are easier to bring to US because there's a portion of the total cost of the drug the cost of production other than the cost of materials would be very small and it would be easy to absorb such cost. So I think they would try to address high value innovative drugs to be brought to the US first then they would try to actually go into generics.
I think this is a no-brainer. So I don't foresee any major change in the short time but if hypothetically something happens we still remain as one of the most cost-efficient countries to produce off-patented drugs. Probably one thing that would all do is remain more competitive and more compliant to their requirements. So still I don't foresee this happening at least in the generics which is our major area of work.
Govindraj Ethiraj: I know the world has not really changed overnight but are there other markets that could offer more opportunity? I mean this is an industry where else could it go assuming you had to create some kind of plan B.
Dr Viranchi Shah: So even if suppose that something happens to the US market and we don't remain too competitive there are a lot of Indian companies who also have the capability to set up plants in the US. So we would still continue to maintain that share. Yes, there are some products that could be manufactured or partially manufactured in the US. If you see the leading top 10 companies playing in the US they already have some or the other form of investment and that could be expanded to continue taking the market share that we have.
Govindraj Ethiraj: You're not seeing a world wherein we are not fully dependent on the US I mean it's fine to be dependent but we are dependent to a large extent to the United States and this of course cuts across industries and more for countries like China but you're not seeing a world where let's say we could reduce our dependence on the US.
Dr Viranchi Shah: No we are not dependent on the US because if you see the US our pharmaceutical export to the US is about 32 percent. So we have another 68 percent that goes to the EU, it goes to the emerging markets, it goes to a lot of countries. There are enough opportunities also in the other markets but since the US itself is almost 40 percent of the global market in pharmaceuticals it is very obvious that our 22 percent share is with the US.
Govindraj Ethiraj: So you know if we were to now you know try and look at how things will evolve in the next month or two as we go to that negotiating table at this point what is it that you feel economically politically we can give up and we've already talked about what we can't give up I mean what is it that we could still give up and how could things go from here.
Shankkar Aiyar: So if you remember in the 60s, 70s and 80s we had these export promotion schemes. You know you sell something and then you get a licence to import some stuff that comes in those are the things that are floating around in the policy domain. The other thing that we could do is to make the corporations more profitable and that would mean a further cut in the taxes. Third way would be and that is the hard road is basically to improve the competitiveness of Indian manufacturing.
I can give you the story of India's manufacturing competitiveness in three letters T-L-I. Why are we having that? Because we have an uncompetitive system whether it is GST or whatever you know.
There is hope for reducing compliance, there is hope for special clearances for new plants, there is hope for opening up our own import tariffs. I mean 20 years back when WTO opened up the quotas for textiles we were supposed to take it from and what happened because we had import duties on every subject that came from anywhere in the world just to protect our guys. Bangladesh which has no duty on the import of subjects but most of I mean Indian companies are in Bangladesh.
So they are manufacturing shirts for 600-800 bucks and selling it in India at 1200 bucks or 1500 bucks or 2000 bucks because under the SARP thing or whatever we don't charge tariffs on Bangladesh to that extent. So we have actually shot ourselves in the foot consistently and maybe we should wake up to reality and smell what's happening around us. I think this is a wake-up call for India and maybe they will wake up, maybe they won't.
I mean I don't see any sign. For instance in the US there is tremendous discussion about what's happening with tariffs. In the EU there is tremendous discussion.
Even in China there is a lot of discussion but in India there is no consultative process. I don't hear anything. I don't see a contrary view.
Okay let's shut down exports to America. What is our dependence? What can we leverage?
None of that is happening. We don't even know what publicly, officially. I have the non-tariff barriers list but that's not a public document.
It's somebody I shared with. Why are we not talking about this? Why are we not consulting about it?
We knew this was coming for six months. We should have been prepared for this. So we went and did some usual you know invitation to the barat kind of thing and came back.
Maybe the FTA is in the making. Maybe something great is happening but do you know or anybody on the panel knows what's really FTA?
Govindraj Ethiraj: Right. Mr. Srivastava last word. So this is really about the next few weeks because obviously there are industries in pain.
Gems and jewellery are in pain. Apparel, while hoping to benefit from higher tariffs on other people, is still not sure and there are other industries which have also been hit. So should we be thinking of or looking at or doing in the next few weeks?
Ajay Srivastava: I agree that we need to look internally. We need to improve our systems, reduce the cost of doing business, and the cost of making things. There are at least 100 specific reforms which need to be taken and we are not taking for years.
We stopped even talking about those things. Now for example custom tariffs reforms, GST reforms needed, then these quality control orders are creating havoc at many levels. We can list more than 100 such reforms which need to be done but I don't see any discussion at the industry level.
People suffer at the isolated level but there is no discussion at all. If there is no discussion then nothing can be done also because the voice has to be raised. So we talk too much about external trade policies of course that affects but if we make a good product at the right price there is a world if not the US somebody else will buy from us and so we need to look internally, improve the product quality and price, not worry too much about these things.
They are not in our control. We should take as and when they come.
Govindraj Ethiraj: Right, that's maybe the right note to end on. Dr. Shah Shankar and Ajay Shrivastava, thank you so much for joining me.
