When U.S. President Donald Trump announced a 50% tariff on Indian exports last week, the intended message to New Delhi was clear: scale back purchases of Russian oil or pay a steep economic price.
But as former Reserve Bank of India Governor Raghuram Rajan warns, the real costs may not be measured in dollars and cents—they may be political, and far more enduring.
The Numbers Don’t Spell Disaster — But Perception Does
On the surface, Rajan explains, the economic blow from giving up Russian oil might be surprisingly manageable. With global crude prices hovering close to Russian rates, India could absorb the shift without an immediate shock to its energy security.
But economics alone doesn’t tell the full story.
In the public eye, yielding to Washington’s demand—especially after such a brazen tariff threat—could be cast as a national loss of face. Rajan points out that had India quietly wound down its Russian oil imports without fanfare, the political backlash might have been far more muted.
Now, the drama is out in the open—and retreat could look like surrender.
Diplomacy in Public vs. Diplomacy in Practice
Tariffs of this scale are rare between strategic partners, and Rajan sees the move as a blunt instrument wielded in full public glare. The goal—weakening India’s energy relationship with Moscow—may have strategic merit from Washington’s perspective. But the method, he cautions, undermines goodwill.
The principle here is simple: cornering an ally in public often forces them to push back harder in private. “It’s hard to negotiate with a gun to your head,” Rajan says bluntly—a comment that doubles as a lesson in statecraft.
The Sectors Hanging in the Balance
While India can pivot to alternative oil suppliers, other export sectors may not be so resilient. A prolonged tariff battle could gut industries heavily dependent on the U.S. market—from gemstones to textiles, leather to agriculture.
Gems and jewellery exports alone account for billions in trade each year. The ripple effect of a 50% tariff could not only dent India’s GDP but also cut thousands of jobs in labour-intensive sectors.
The Geopolitical Domino Effect
Beyond trade and tariffs, Rajan points to an even larger strategic risk: pushing India into the arms of other powers. As Washington turns up the heat, Moscow and Beijing offer a tempting counterbalance.
Prime Minister Narendra Modi’s imminent visit to China—his first in over seven years—may well be an early sign that India is exploring its options.
A Call for Strategic Restraint
Rajan isn’t advocating stubborn defiance. His plea is more nuanced: dial down the rhetoric, return to quiet diplomacy, and look for face-saving compromises on both sides.
Because in his view—and arguably in history’s—the strength of a strategic partnership isn’t measured by the number of demands met, but by the mutual respect that allows both sides to walk away claiming a win.
If Washington genuinely sees India as a cornerstone of its Indo-Pacific policy, it might remember Rajan’s underlying point: alliances are built in trust, not in ultimatums.
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