Reducing India’s exposure to U.S. tariff risks

International Relations & Economy · 3 September 2026 · Based on The Hindu (original report)

2-minute summary

The U.S. Senate's passage of the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 poses a significant threat to India's economic interests. The Act proposes up to 100% tariffs on the top five importers of Russian crude oil or natural gas. Since the Russia-Ukraine conflict, India's imports of Russian crude have surged from 2% to nearly 50% of its total oil imports. Combined with existing 10% tariffs under Section 301 of the U.S. Trade Act of 1974, India could face a cumulative tariff of 110%, severely damaging its export competitiveness in the U.S. market. Global trade simulations using the GTAP model indicate that such sanctions could cause a $47 billion welfare loss for India, alongside contractions in GDP and exports. However, the study highlights that negotiating a functional India-EU Free Trade Agreement (FTA) could mitigate these shocks, turning welfare gains positive by $26.3 billion. To build long-term resilience, India must pair export diversification with domestic structural reforms, including improved logistics, trade facilitation, and quality standards.

Why it's in the news

The U.S. Senate recently passed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, which threatens to impose up to 100% tariffs on major importers of Russian energy, directly targeting India's strategic energy procurement and export stability.

Background and context

Following the outbreak of the Russia-Ukraine conflict in 2022, Western nations imposed price caps and sanctions on Russian oil. India, prioritizing its domestic energy security and inflation management, significantly increased its purchase of discounted Russian crude. This shifted Russia's share in India's oil import basket from a mere 2% to approximately 50% by 2026. While this strategy saved billions in import bills, it has strained diplomatic ties with the U.S., which uses unilateral trade instruments like Section 301 of the Trade Act of 1974 to enforce foreign policy objectives. The proposed Lindsey O. Graham Act represents a major escalation in secondary sanctions, forcing India to balance its strategic autonomy in energy procurement with its export-led growth interests in the Western hemisphere.

Constitutional provisions

• Article 73 — Deals with the executive power of the Union, which extends to matters with respect to which Parliament has power to make laws, including entering into treaties and international agreements.
• Article 253 — Empowers Parliament to make any law for the whole or any part of the territory of India for implementing any treaty, agreement, or convention with any other country or countries.

Committees and reports

• Global Trade Analysis Project (GTAP) Database and Model — Used to simulate global trade linkages and assess the macroeconomic impact of U.S. tariff shocks and India-EU FTA diversification on India's GDP, welfare, and trade balance.

Government schemes

• National Logistics Policy (NLP) — Aims to reduce logistics costs in India from double digits to global benchmarks, enhancing export competitiveness to cushion external tariff shocks.
• Remission of Duties and Taxes on Exported Products (RoDTEP) — Ensures that domestic taxes are not exported, helping Indian exporters maintain price competitiveness in highly tariffed foreign markets.

International organisations

• World Trade Organization (WTO) — The global body governing trade rules. Unilateral tariffs under U.S. Section 301 often challenge WTO's Most-Favoured-Nation (MFN) principles and dispute settlement mechanisms.

Previous UPSC questions on this theme

• Mains GS-2 2019 — 'What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India's national self-esteem and ambitions.' Explain with suitable examples.

Mains practice: Analyze how the weaponization of trade through unilateral sanctions by developed nations impacts India's strategic autonomy. Suggest policy measures India should adopt to safeguard its economic interests.

The weaponization of trade through unilateral sanctions, exemplified by the U.S. Senate's Lindsey O. Graham Act of 2026, poses a direct challenge to India's strategic autonomy. By threatening up to 100% tariffs on major importers of Russian energy, such legislations attempt to dictate India's sovereign energy decisions through economic coercion.

**Impact on India's Strategic Autonomy and Economy:**

• **Energy Security Vulnerability:** India imports nearly 85% of its crude oil. Transitioning Russian crude (which comprises ~50% of imports) back to volatile Middle Eastern sources would inflate India's import bill and disrupt fiscal math.

• **Export Competitiveness:** Combined with existing Section 301 tariffs, India faces a cumulative tariff of up to 110% in the U.S., its largest export market, risking a projected $47 billion welfare loss and contraction in GDP.

• **Diplomatic Tightrope:** It forces India to balance its critical defense and energy partnership with Russia against its deep economic and technology ties with the United States.

**Way Forward and Policy Measures:**

• **Aggressive Export Diversification:** India must expedite pending Free Trade Agreements (FTAs), particularly with the European Union. GTAP simulations show an India-EU FTA could reverse welfare losses, generating a $26.3 billion surplus.

• **Domestic Structural Reforms:** To absorb external shocks, India must lower domestic transaction costs by fully implementing the National Logistics Policy, removing non-tariff barriers, and upgrading product quality standards.

• **Rupee Internationalization:** Promoting trade settlement in local currencies (like the INR-Ruble or INR-Dirham mechanisms) can bypass Western financial messaging systems and reduce vulnerability to secondary sanctions.

In conclusion, while strategic autonomy remains the cornerstone of India's foreign policy, safeguarding it requires a dual approach of proactive trade diplomacy abroad and robust structural competitiveness at home.

Prelims practice questions

Q1. With reference to international trade and U.S. trade policies, the term 'Section 301', often seen in the news, is primarily related to:

1. A bilateral treaty framework for intellectual property rights protection.
2. A provision allowing unilateral U.S. tariffs on countries deemed to engage in unfair trade practices.
3. An agreement under the WTO to reduce non-tariff barriers on agricultural goods.
4. A mechanism to provide financial aid to developing nations.

Answer: B. Section 301 of the U.S. Trade Act of 1974 authorizes the U.S. President to take all appropriate action, including retaliation/tariffs, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory.

Q2. The 'Global Trade Analysis Project' (GTAP), which is frequently utilized in trade policy simulations, is coordinated by which of the following?

1. International Monetary Fund (IMF)
2. World Economic Forum (WEF)
3. World Trade Organization (WTO)
4. Purdue University

Answer: D. The Global Trade Analysis Project (GTAP) is a global network of researchers and policymakers coordinating quantitative analysis of international policy issues. It is headquartered and coordinated by the Department of Agricultural Economics at Purdue University.

Q3. Consider the following statements regarding India's crude oil imports in recent years: 1. Prior to the Russia-Ukraine conflict, Russian crude oil accounted for less than 5% of India's total crude imports. 2. By 2026, Russia's share in India's crude oil import basket grew to approximately half of its total imports. Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: C. Both statements are correct based on the trade data. Before the conflict, Russian crude accounted for just 2% of India's imports. By 2026, due to discounted pricing and strategic diversification, it rose to roughly half (~50%) of India's total crude imports.

Revision flashcards

• What is the primary trigger of the Lindsey O. Graham Act of 2026? It authorizes U.S. tariffs of up to 100% on countries among the five largest importers of Russian crude oil or natural gas if they make new purchases after its enactment.
• How did India's Russian crude import share change post-2022? It surged from just 2% of India's total crude imports prior to the Russia-Ukraine conflict to roughly 50% (half) by 2026.
• What is the significance of Section 301 of the U.S. Trade Act of 1974? It is a unilateral U.S. trade tool used to impose retaliatory tariffs on foreign countries. In July 2026, it was used to impose a 10% forced-labour tariff on 60 countries, including India.
• According to GTAP simulations, what is the economic impact of U.S. sanctions vs. an India-EU FTA? U.S. sanctions alone cause a $47 billion welfare loss for India. Combining the sanctions with an India-EU FTA turns welfare positive by $26.3 billion, mitigating the shock.
• What domestic reforms are needed to complement India's export diversification? Trade facilitation, removal of non-tariff barriers, implementation of the National Logistics Policy, and upgrading product quality standards.