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P Chidambaram, the former finance minister, has launched a sharp critique of the Indian government's approach to the impending tariff war with the United States, emphasizing that mere duty concessions and flattering overtures towards President Donald Trump will not suffice as an effective strategy. Instead, he advocates for India to align itself with nations that have demonstrated “saner voices” in navigating this complex international trade issue. During his participation in the Rajya Sabha debate on the Finance Bill, 2025, the seasoned Congress leader vocally challenged the government on various aspects of its fiscal policy and tariff management. He meticulously outlined the myriad challenges currently confronting the Indian economy, including persistently high levels of unemployment, escalating inflation rates, stagnant wage growth, the continuous depreciation of the Indian currency, declining consumption patterns, and inadequate government spending on crucial sectors like healthcare and education. Despite his criticisms, Chidambaram did commend the government's recent decision to shun protectionist policies, highlighting that the Congress party has long supported and championed this approach. He expressed his surprise that Finance Minister Nirmala Sitharaman had not prominently emphasized this shift in her budget speech, even though it was clearly outlined in the budget annexures. Furthermore, Chidambaram welcomed the announcement of significant reductions in basic customs duties, stating that it was a positive sign that the government was finally moving away from protectionism. “We (Congress) have screamed from the rooftops that protectionism is not the way to protect the economy. We are mixing up protectionism and patriotism. We can be patriots (sic) but we do not have to follow protectionism. Protectionism is the antithesis of free trade. That is the first lesson in trade economics. It is a wrong policy,” Chidambaram stated, firmly asserting his stance against protectionism. He cited prominent economists like Jagdish Bhagwati and Arvind Panagariya, along with the Niti Aayog, as other influential voices that have consistently opposed protectionist measures, lamenting that their advice has often fallen on “deaf ears.” The former Finance Minister also referenced observations from the World Trade Organization (WTO), noting that India’s simple average final bound tariff is 50.8%, while its MFN trade-weighted average stands at 12%. He pointed out that customs duties have been reduced on various goods, including motor vehicles, passenger cars (from 125% to 70%), goods transport vehicles, motorcycles (100% to 70%), bicycles (35% to 20%), and toys (70% to 20%), questioning why Finance Minister Sitharaman had not highlighted these reductions in her speech. Additionally, he noted the withdrawal of the 6% digital service tax. Chidambaram questioned the sincerity behind these policy changes, suggesting that they might be a direct consequence of pressure from President Donald Trump, who has allegedly forced the government to reduce these duties. Describing tariffs as the “elephant in the room” in the current economic landscape, Chidambaram revealed that Trump had informed Prime Minister Narendra Modi of his intention to launch a tariff war on April 2, dismissing the latter's request to refrain from doing so. He criticized the government's lack of transparency and consultation on this critical issue, stating, “If he presses tariffs on India on April 2, what will be India’s response? There has been no statement on policy, no discussion in Parliament, and no consultation with the Opposition. The government is holding its cards, if it has any, close to its chest.”
Chidambaram stressed that a tariff war would be detrimental to the principles of the WTO, multilateral and bilateral trade agreements, and international conventions, warning that it could “wreck the world economy and ruin the economies of developing countries.” He further cautioned that a tariff war would inevitably lead to a broader trade war, causing widespread economic harm across the globe. He detailed the potential consequences of a tariff war, including reduced exports, lower foreign direct investment (FDI), higher inflation, and currency depreciation. To mitigate these risks, Chidambaram advised that India should align itself with “saner voices” among nations, citing Canada, Britain, France, Germany, and Japan as examples. He emphasized that concessions and flattery towards President Trump would not be an effective long-term strategy. Turning his attention to the government’s fiscal policy, Chidambaram acknowledged the “commendable” intentions behind it but argued that the implementation has fallen short of expectations. He pointed out that the fiscal deficit in May 2014, when the Narendra Modi government assumed office, stood at 4.5%. While this improved to 3.4% in the middle of the government's term (2018-19), it is projected to rise back to 4.8% by the end of 2024-25. “So, effectively the country’s economy is back to where it started. The government will say Covid dented the economy. I agree, but every government faces crises,” Chidambaram argued, highlighting the government's performance in managing the fiscal deficit over its tenure. He drew parallels to the economic challenges faced by the previous UPA government, including the Asian financial crisis, the international financial crisis, and the taper tantrum. He maintained that blaming crises is unproductive and that it is the government's responsibility to manage the economy effectively, control the fiscal deficit, and prevent economic decline. He gave the government a “low pass, not fail” rating on its fiscal policy, indicating a less-than-satisfactory performance.
Further elaborating on the fiscal situation, Chidambaram referred to the fiscal policy strategy statement tabled by the government in Parliament, which projects the debt-to-GDP ratio to be 57.1% in 2024-25. He noted that when the NDA government assumed office, the debt-to-GDP ratio was 51%; it initially worsened to 61.4% before improving. He disputed the government's claims that the debt-to-GDP ratio is on a decline, arguing that this is incorrect when compared to the 2014 figure. He emphasized the importance of improving the gross tax revenue-to-GDP ratio beyond 12%, noting that it has remained stagnant between 11.15% and 11.64% for the past decade. In conclusion, Chidambaram's address highlighted his concerns regarding the government's handling of the impending tariff war with the US and its overall fiscal policy. He urged the government to adopt a more strategic and multilateral approach to international trade, emphasizing the need to collaborate with nations that have demonstrated a more reasoned approach to trade negotiations. He also called for greater transparency and consultation with the opposition on critical economic issues. His critique of the government's fiscal policy focused on the need for more effective management of the fiscal deficit and the debt-to-GDP ratio, as well as the importance of increasing tax revenues. Overall, Chidambaram's remarks reflect his deep concern for the Indian economy and his belief that the government needs to take more decisive action to address the challenges it faces. His emphasis on international cooperation and sound fiscal management underscores the importance of a well-informed and strategic approach to economic policy in a rapidly changing global landscape. His speech serves as a call to action for the government to prioritize long-term economic stability and growth, rather than resorting to short-sighted and potentially damaging policies.