'Make In India' Need not Transform Into 'Make All That India Needs': Former RBI Guv D Subbarao

Sounding a note of caution, former RBI Governor D Subbarao on Monday said that 'Make in India' should not transform into 'Make all that India needs' as it would hurt investments in the country and impact productivity.

Subbarao further said the punitive 50% tariffs on Indian exports imposed by the US will raise the costs of Indian goods in the most important overseas market, which is America.

"If 'Make in India' degenerates into 'Make all that India needs', we risk losing the chance to attract investment away from China.

"The tariffs remind us that openness, not isolation, is the path to sustainable growth," he told PTI in an interview.

Subbarao said the success of 'Make in India' hinges on competitiveness, not protectionism.

"Atmanirbhar Bharat, an aspiration that the Prime Minister reiterated in his Independence Day speech, must mean strategic self-reliance in sensitive areas like defence and energy, not blanket self-sufficiency," he said.

According to him, 'Make in India' was conceived as positioning the country as an export-driven manufacturing hub-making in India, not just for India, but for the world.

"Punitive US tariffs cut directly into this ambition by raising the cost of Indian goods in our most important overseas market," Subbarao said, adding that investors considering India as an alternative to China in their China+1 diversification strategy will hesitate to lock into an India that is saddled with the highest tariffs in Asia.

Prime Minister Narendra Modi, in his Independence Day address, had said that for a nation, the biggest basis for self-respect ('atmasamman') is still 'atmanirbharta' (self-reliance). "And, the basis for 'Viksit Bharat' is also 'Atmanirbhar Bharat'".

Responding to a question on impact on the impact of 50% tariffs on India's exports and competitiveness, Subbarao said America is India's single largest export market, accounting for nearly 20% of our total exports and over 2% of GDP.

"A 50% tariff - even after exempting pharma and electronics - would hit at least half of our exports, especially in labour-intensive sectors such as textiles, gems & jewellery, and leather," he said.

Subbarao also pointed out that the current exemptions on pharma and electronics are not permanent; ongoing reviews could bring them under tariff in the future "More worrying is that India now faces the highest tariff in Asia, far above Bangladesh (20%), Vietnam (20%), and Indonesia (19%). This undermines our China+1 aspiration at a critical moment," he said.

The former RBI Governor noted that the joint pledge by Modi and Trump at their February meeting to more than triple bilateral trade to USD 500 billion by 2030 now looks clearly unrealistic.

"While assessing the potential impact on our exports, we must also reckon with the possibility of China dumping in world markets to offset the loss of its US market.

"To the extent these are markets where we compete, our exports to destinations outside of the US will also be hit," he said.

Asked if it is at all possible for India to yield a little in giving access to the US in the agriculture and dairy sector, Subbarao said agriculture and dairy are politically sensitive sectors in India, providing livelihoods to millions, and tied closely to the country's food security.

"A blanket opening to US imports is neither feasible nor desirable.

"However, some calibrated flexibility could help unlock the impasse in negotiations," he said.

According to him, this might mean limited tariff-rate quotas, selective product lines, and sanitary and phytosanitary alignment in exchange for significant gains in US market access for India's exports.

Noting that any such opening should be phased, targetted, and paired with a strong backstop for farmers - investment in cold chains, productivity upgrades, and rural support programs, Subbarao said," India must protect its red lines but should not reject pragmatic compromises that deliver broader trade benefits." Asked if it is possible to pare down Russian oil imports, he said if India were to suddenly pivot from Russia to the Gulf, global oil prices would spike because neither US shale nor OPEC can ramp up supply quickly.

"The effect would be to raise the global crude price, hurting India's current account, weakening the rupee, and fuelling inflation pressures," Subbarao said, adding that, in short, moving away is not a simple solution.

He observed that the pragmatic course is gradual diversification - adding Middle Eastern and African barrels over time - while retaining flexibility to protect national energy security.

“Currently, we import about 1.7 million barrels a day of Russian oil. There is an argument that since the Russian discount has fallen to USD 5 per barrel, the cost of switching away is less than 0.1% of GDP,” he added.

On the impasse on India-US trade talks and what should be India's negotiating strategy going forward, Subbarao said a balanced agreement is possible if both sides focus on comparative advantages rather than deficits.

"Our strategy should be pragmatic: resist emotional reactions, identify win-win sectors, and push for preferential access in labour-intensive industries, while offering selective concessions where feasible," he said.

For India, America is the largest partner and one of the few countries with which it enjoys a trade surplus