Former Reserve Bank of India (RBI) Governor Raghuram Rajan has urged the Centre to explore a fresh strategy to soften the impact of Washington’s latest trade move against New Delhi. His suggestion comes after Donald Trump’s steep 50% tariffs on Indian goods, a step prompted by India’s continued energy partnership with Russia.
In a LinkedIn post, Rajan argued that the Indian government should consider imposing a windfall tax on refiners reaping substantial margins by processing discounted Russian crude. The idea, he explained, is to redirect the unexpected gains from refiners toward supporting the country’s small and medium enterprises (SMEs)—especially in the textiles and apparel sectors—that are struggling to absorb the blow of higher tariffs in their biggest export market.
“Given there is now a cost to buying Russian oil falling on our small and medium exporters, why not impose a windfall tax on refiners proportional to the Russian oil they buy and channel that revenue to SMEs?” Rajan posed. “Those profiting from Russian oil also contribute to the burden, instead of passing it on to others.”
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A windfall tax is designed to capture companies' extraordinary profits under favourable conditions, often due to external factors rather than innovation or improved efficiency. Rajan believes such a levy would ensure that refiners, notably Reliance Industries and Nayara Energy, the two largest buyers of Russian crude, help shoulder the costs their import choices have indirectly created for exporters.
Rajan has long warned of global trade risks and sees these tariffs as a reminder that India must diversify its economic strategies. “This is a wake-up call,” he said in a recent television interview. “We must not rely too heavily on any single partner. It is time to broaden our horizons to Europe, Africa, and back to the US while simultaneously pushing reforms that allow India to achieve 8–8.5% growth and create jobs for our youth.”
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Tariffs Hit Indian SMEs Hard
The rise in US tariffs on August 27 are impacting Indian exporters very much. Local businesses say these added costs are messing up orders and deals. To avoid losing money, some companies are quickly checking out other markets in Europe, Africa and Asia.
According to Reuters, the industry's affected so far include textiles, garments, automobiles and food & beverage exports, where Indian SMEs are heavily concentrated.
Despite mounting pressure, India has dismissed Washington’s claim that Russian crude imports indirectly bankroll Moscow’s war effort. New Delhi has reiterated that it will not halt purchases from Russia, given the economic benefits of cheaper oil. In fact, industry sources say refiners plan to raise their Russian crude intake by 10–20% in September, adding 150,000–300,000 barrels per day compared to August levels.
Rajan's idea could help refiners with cheap energy while helping small and medium-sized enterprises that are struggling to stay competitive, so it seems like a fair compromise. We'll see if the government goes for it, but Indian exporters need help as soon as possible.
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