India’s coddled billionaires feel the pain of US tariffs

By Andy Mukherjee

There’s still two weeks to go before US President Donald Trump’s April 2 deadline for imposing reciprocal taxes on imports. But New Delhi already seems to have gone into damage-control mode, anticipating the worst.

Over 24 hours last week, two of India’s largest wireless carriers, whose billionaire owners were staunchly opposed until now to Elon Musk getting a free pass to enter their market, independently announced partnerships with his Starlink Inc. A top government minister even posted (and then deleted) a welcome message on X, even though the satellite broadband service is yet to obtain local regulatory approvals.

Narendra Modi didn’t respond to the opposition Congress Party’s allegations that the deals were orchestrated by his administration “to buy goodwill with Trump.” But throw in the flurry of news last month around the prime minister’s visit to the White House about how India might allow imports of Tesla Inc.’s cars at a much lower duty than the 110 per cent it charges currently, and it’s pretty clear that New Delhi is changing its tune on trade and tycoons.

In the past 10 years, Modi’s economic strategy has relied heavily on a small team of national champions. To protect them from foreign competition, tariffs that in 2011 had almost fallen to China’s 7 per cent levels were raised to 12 per cent by 2022, among the highest in the world.

This preference for shielding oligarchs with hefty tariffs, favorable government contracts, as well as nontariff barriers like stifling rules for foreign-backed commerce, has been pretty well-known internationally. Robert Lighthizer, the US trade representative during Trump 1.0, kept the biographies of about 15 of them on his desk while negotiating with New Delhi. As he noted in his 2023 book, “In predicting Indian government positions, I would look to the interests of these men.”

Academic research has corrobrated the growing heft of the richest businessmen — Mukesh Ambani and Gautam Adani — as well as the Mumbai-based Tata Group, cement czar Kumar Mangalam Birla and telecom tycoon Sunil Mittal. The top five groups’ share of nonfinancial assets rose from 10 per cent in 1991 to 18 per cent by 2021.

The expansion picked up steam after Modi first became prime minister in 2014. That’s when the conglomerates “started acquiring larger and larger shares within the sectors where they were present,” according to Viral Acharya, a former central bank deputy governor who now teaches at the New York University. “Given the high tariffs, Big-Five groups do not have to compete with international peers” in many industries, Acharya noted in his 2023 study. Nor do they have to test their muscles overseas. They garner most of their revenues at home, in areas ranging from telecoms, media and retail, to ports, airports, building materials and autos.

Under Trump 2.0, India’s so-called Billionaire Raj could grind to a halt. The Modi government has already started preparing domestic industry for April 2, with the commerce minister asking exporters to “come out of their protectionist mindset.” They’re not the ones who need a change of heart, though. The state has a strong political imperative for a course correction.

In pushing India to buy more from America, the Trump administration has highlighted India’s 39 per cent tariffs on agricultural products, eight times what the US charges. But Modi has a testy relationship with farmers in North India. They have rejected his offer of a more market-based pricing regime and continue to agitate for greater state protection. In a country where nearly half of the workforce is still in farming, any trade concessions on agriculture may be politically expensive. It may be safer to push the burden of Trump’s tantrums to local billionaires.

But the tycoons will also lobby to protect their turf. According to media reports, India has asked manufacturers to replace Chinese-made parts and raw material with American alternatives. That’s a costly proposition. If the Modi administration pushes this line strongly, there’s bound to be resistance. Already there are murmurs in bureaucratic circles that the world’s most-populous nation has aligned itself too strongly with the West, allowing itself to be used as a pawn in US-China rivalry. Maybe it’s time to mend ties in the neighborhood instead. If Tesla is to be given a red-carpet welcome, why not clear the long-pending application by China’s BYD Co. to make electric cars in India — with a local partner?

That’s just one example. Any missteps in defining and protecting India’s national interests may upend an entire model in which a small group of national champions were galvanized to recreate an economic success rivaling China — but standing at an adversarial distance to it. That narrative is nowhere close to fruition. At 13 per cent, factory output has a smaller share of gross domestic product than at any time since 1960. Meanwhile, the trade deficit with China has doubled in the past decade, a reflection of India’s growing dependence on the larger economy.

Before Modi could do anything about that $100 billion annual shortfall, Trump is out to crunch India’s near-$50 billion trade surplus with the US, the South Asian nation’s biggest overseas market. It couldn’t come at a worse time. Domestic demand is slowing sharply, and stock markets are reeling under a $1.3 trillion rout. New Delhi’s best hope is to buy time for broader trade negotiations with Washington by delaying the threat of reciprocal tariffs, especially on politically sensitive agricultural products.

The sudden enthusiasm for the businesses of Trump’s head of government efficiency has a clear message for India’s coddled billionaires: They’re being cut loose.