What is the reciprocal tariff ? Why has the US adopted reciprocal trade ? What would be its impact upon India and the world?

 Why is it in the news? 

1. The United States President Donald Trump declared that he would adopt reciprocal tariffs in international trade. It means the end of existing trade rules. The reciprocal tariff would come into effect after 1st April ,2025. 

2.It should be noted that countries have been imposing tariffs on imported goods from foreign countries. However, since the end of World War II, the world has moved towards free trade. There has been consensus among developed countries that free flow of goods and services among countries is mutually beneficial for all. A world body called GATT (General Agreement on tariff and trade) was established in 1948 to look into international trade practices. 

3.In 1995, GATT was replaced by the WTO which was given more power to enforce trade rules. It should be noted that although the developed countries gave emphasis upon free trade, they ensured that developing countries should not be flooded with cheap items from the developed countries. The logic was simple. That the goods and services produced by developing countries would not be matched and cannot compete with that of developed countries. So while the tariffs in the developed countries were kept at low, the tariffs for the developing countries were kept at high level. For example, the average duty levied by the US in 2023 was 3.3% followed by Japan less than 4%, EU 5%, Russia 6.6%, China and South Africa more than 7% , Brazil 11% and India 17%. 

4.The higher tariffs in India are on account of high tariffs on agricultural products to protect farmers. While import duties on agricultural products were at 39%. It was only 13.5% on non-agricultural products in 2023 (Source : The Hindu). The high import duty on agricultural products is meant to protect our farmers who cannot compete with subsidised US agricultural products. 

What is the reciprocal tariff?

The new reciprocal tariffs announced by President Trump want to do away with this exception of providing higher tariffs on imported goods into developing countries. It means that if a country has imposed 20% tariffs on imported goods and services from the US, the US Government would also impose 20% tariffs on goods and services exported from that country into the US. It is also suggested that if a country has given subsidies and other incentives to promote exports, then the exported goods to the US will be levied additional duties. For example, the Indian Government has disbursed $1 billion to companies between 2022-24 under the production linked incentives to boost exports of mobile phone handsets. The new reciprocal tariffs adopted by the US would take into account these subsidies while calculating the additional import duties. 

Why has President Trump enforced reciprocal trade? 

1.The US trade deficit with the rest of the world has gone to $1 trillion annually. While China enjoys a trade surplus of more than $1 trillion annually, the US has a huge trade deficit with China, India, EU, Mexico, Canada, Japan, and South Korea. The US wants to do away with the tariff differential with different countries whose goods imported into the US cause trade deficits. Following are the tariff differential with the US against India, China, Canada, Mexico and Vietnam. 

Tariff Differential with us (% PP, Weighted Average, 2022)
Products	India	China	Canada	Mexico	Vietnam
Animal	30.2	9.3	29.3	28.9	9.4
Chemical	10.2	2.4	0	3.3	1.2
Footwear	17.2	-5.8	0	11.9	-8.9
Fuels	6.8	2.6	0	0	0
Hides and skins	3.0	-4.6	0.3	4.7	-6.4
Machinery	6.0	1.1	0	0	2.0
Metals	7.8	1.7	0	5.0	0.6
Minerals	8.6	0.7	0	0	0.6
Vegetables	20.5	13.2	0.2	10.5	4.3
Transportation	14.4	9.8	0	6.9	4.0
%pp=percentage points , Source : Ministry of Commerce and Industry

For example, the US imposes 2.5% tariff on European cars while the EU imposes 10% tariffs on US cars. Earlier, the US removed India from its GSP  (Generalised System of Preferences) leading to higher tariffs on Indian exports of goods like 25% tariff on Indian steel and 10% on aluminium.  Thus, the US wants to protect domestic jobs and domestic industries like steel and aluminium because these industries are struggling in the face of cheap steel and aluminium imported into the US. It puts 25% tariffs on all goods and services imported into the US from Canada and Mexico and 10% tariffs on Chinese goods and services imported into the US. China retaliated by levying 15% duties on coal and LNG and 10% on oil and agricultural equipment imported from the US.  

2. Critics are also of the view that President Trump wants to offset the loss of $460 billion annually on account of reduction in corporate and personal income tax under tax cuts and job act of 2018 during his previous tenure and this act is to expire in 2025. President Trump wants to extend those tax cuts permanently. Since the US imports around $4 trillion of goods annually, the collective import share of Mexico (15.6%), Canada (12.6%) , China (13.5%) and EU (16%) accounts for 58%. An increase of 25% tariff on Canadian, EU and Mexican goods along with 10% additional tariff on imports from China, plus 10% duties on energy imports from Canada would raise $480 billion annually, thereby financing the entire annual cost of extending the tax cuts. 

What would be its impact upon India and the world?

1.Indian steel, aluminium, textile products exported to the US would become expensive leading to the reduction of export volume of these items to the US. 

2. Since, the US is the largest trading partner of India and India had $45 billion surplus trade in 2024, the reciprocal tariff would hit the Indian market. As of now, India exports primarily engineering goods, electronic goods, gems & jewellery, drugs and pharmaceuticals and petroleum products. On the other hand, India imports from the US primarily minerals, fuels and oils, precious and semi-precious stones, nuclear reactors, boilers, electrical machinery and aircraft and its parts. If the US insists upon reciprocal tariffs, the biggest casualties would be the agricultural sector and this sector would be flooded with cheap American agricultural products.  Secondly, the US may insist upon India to buy more mineral fuels and oils to offset the trade deficit. This would put more pressure on the demands of the US dollar, causing further dipping of Indian rupees vis-a-vis the US dollar.

3.Since the EU is the second largest trading partner of India after the US, any increase in tariff of goods & services of EU imported into the US would give an opportunity to India to increase its exports to the EU. 

4.Critics also point out that the US-China trade war in the long run will benefit Indian exports to the US. 

5.There would be disruption in the supply chain causing inflation in different parts of the world. Secondly, China, EU, India and other countries would retaliate by raising tariffs on goods and services imported from the US. 

6. There would be higher prices of consumer and capital goods faced by people worldwide. 

7. Countries would sign free trade agreements and trade pacts with other countries to lessen their reliance upon the US. 

8. The trade war between the US and China would benefit Brazil, Mexico, Vietnam and India. 

9. The biggest sufferer would be the US farmer, the US export of farm produce amounts to $191.2 billion in 2024. China, Canada and Mexico import a maximum chunk of farm produce amounting to $91 billion or 47.6%. If these countries retaliate and stop importing US farm produce like soyabean, cotton, coarse grains, almonds, walnuts, wheat, dairy products, forest produce, tree nuts , beef, corn etc. the biggest beneficiary would be Brazil, Argentina, Paraguay, Ukraine, Russia. Although the US farmers constitute less than 2% of the US population, they exert more political influence in American politics. So any set back to the US farmers would drastically reduce the popularity of President Trump. 

 

What is the way out for India ?

1.Diversification of export markets. This would reduce the reliance on the US.

2. Boosting of domestic manufacturing.

3. Free trade agreements with various countries so that Indian goods and services get access to those markets. 

4. Lobbying with the US for trade concessions.

5. India should simultaneously raise the issue of unfair practices before the WTO. 

Conclusion

India must not buckle under the pressure of the US. It must safeguard its agricultural sector, otherwise farmers of India would be hard hit. It should diversify exports to reduce dependence upon the US. It should further lay stress upon the growth of local industries to minimise trade deficits.

Middle class in India : Problems and Prospects

 Why is it in the news ?

1. Budget of FY 25-26 gave concessions to the middle class by alleviating the tax burden upon them. The finance minister raised the income tax exemption threshold from ₹7 lakh to ₹12 lakh per annum. The inclusion of ₹75000 as standard deduction alleviates the tax free income limit to ₹12.75 lakh. Thus, those taxpayers who are earning ₹25 lakh annually can save up to ₹1.1 lakh, individuals earning ₹10 lakh can save ₹50 thousand and individuals earning ₹15 lakh can save ₹75 thousand.

The new tax slabs would give the following benefit to the people

Income	Total Benefit
Up to 8 Lakh	₹30000
9 Lakh	₹40000
10 Lakh	₹50000
11 Lakh	₹65000
12 Lakh	₹80000
16 Lakh	₹50000
20 Lakh	₹90000
24 Lakh	₹110000

The tax concession caused a revenue loss of approximately ₹1 lakh crore to the government. However, the government expects that the tax reduction would boost household consumption and improve economic growth by creating aggregate demand in the economy.  The government was forced to give concessions to the middle class because according to RBI data, the net household savings as percentage of GDP was at the lowest level in the last 50 years. Secondly, the mounting unsecured loans have pushed net savings to a low level, leaving families with less disposable income. Elevated food inflation, high interest rates and shrinking discretionary income have made it difficult for the middle class to maintain their previous spending levels. 

Who is middle class in India ? 

1. According to the People Research on India’s Consumer Economy (PRICE), the middle class consists of individuals having annual income between ₹5 lakh to 30 lakh. 

2. According to NCAER (Council for Applied Economic Research), the middle class in India are those whose annual earning is between ₹2 lakh to 10 lakh. 

3. According to the World Bank, individuals earning between $10 and $20 per day (₹313200-522000)are in the middle class. 

4. According to Pew Research Centre, individuals earning between $10 to $20 per day can be put under middle class. 

5.Apart from income criteria, the middle class can be defined also on the basis of occupation. It includes salaried professionals, government employees, small business owners and skilled workers.  

Changing contours of middle class in India

1. The middle class now represents 31% of India’s population of 1.40 billion. It is projected to hit 38% by 2031 and 60% by 2047. Thus, by the middle of this century India is projected to have a middle class population of around 1 billion. 

2. During the British Rule, a small number of middle class arose on account of industrialisation in India. They were professionals, business managers, lawyers, doctors, bankers, teachers etc. 

3. After independence, the middle class was largely created by the public sector undertaking. However, by 1995, the organised private sector became also powerful employing 80.6 lakh while the public sector employed 194.7 lakh. Before the year 2000, public sector undertakings and railways had a predominant share in employment but after 2011-12, the trend shifted towards IT companies. Now they employ more than railways, public sector undertakings and defence. Similarly, the private banks also surpassed in 2023-24 the scheduled commercial banks in matters of employment. Thus, IT, finance, accountancy, legal, health, hospitality, tourism, transportation, logistics, aviation, media, advertising, sports, entertainment, real estate and retail services led to the growth of the middle class in India. The middle class has now become all pervasive. It has now spread even to rural areas because of the rising incomes of farmers and individuals living in villages. The new middle class arose because of the exponential growth in the services sector.  They are employed more in IT, MNCs, and the Gig economy. They have multiple sources of income. They are highly entrepreneurial and want to launch a startup to get self employment instead depending upon government jobs.  However, since the Indian economy did not experience structural transformation like in China, the middle class rose more in the services sector. The limited growth of manufacturing and agriculture sectors put a limit on the growth of the middle class in the primary and secondary sectors. Even in the services sector, the growth of the middle class is limited because of insecurity of job and low paid salaries to workers employed in the unorganised sector which constitute 94% of the total employment in India. Similarly, India witnessed huge growth of Gig workers in companies like Zomato, Uber, Ola, Flipkart, Amazon. But because of their insecurity of job and low paid salaries, these sectors put a break upon the growth of the middle class in India. 

Problems of middle class

1. Although the middle class in India produces half of the national income, it is being confronted with several problems. These are : 

• Wages are not increasing in proportion to the rising inflation. 

• There is huge competition for getting government jobs. Thousands of candidates apply for the high salaried jobs for a few posts, showing acute unemployment among the middle class in India. 

• Because of the advent of artificial intelligence and automation, most of the managerial posts in the companies are disappearing. 

• Because of the digital platform, the Gig economy is rising. But Gig workers have low paid salaries and insecurity of tenures, putting a break upon the growth of the middle class. 

• High cost of education and healthcare further reduce the disposable income of the middle class. 

• Skyrocketing property prices makes it difficult for the middle class to own houses in the urban centres.

• Increasing expenses on account of rising cost of diesel and petrol have put a break upon their mobility.  

• Long hours of work in banking, IT and corporates have strained their physical and mental health. Work pressure leaves little time for their personal upkeep and prevents them from leading a good family life. 

Prospects of middle class 

1.The prospects of the middle class in India in the coming year are very bright.

2. It is expected that by 2050, the population of the middle class would go to one billion. Thus, it would have more political clout than before. 

3. With the increasing disposable income , the middle class would be investing more in mutual funds stocks and crypto currencies. 

4. Due to the government's efforts to launch a smart cities mission, the middle class will find affordable housing facilities. 

5. The increased income of the middle class would further lead to the growth of real estate, automobiles and consumer goods.   

6. With the increasing population of the middle class, there would be a shift from blue colour jobs to white colour jobs in the sectors like E-commerce, IT, Finance and Health sector. 

7. The digitalisation of the economy would further boost the expansion of the Gig economy, E-learning and skilling. These new avenues would further boost the growth of the middle class in the country.  

8. With the higher disposable income, the new middle class would venture  start-ups more vigorously.  

9. The National Manufacturing Mission initiated by the government would further broaden the base of the middle class in the sectors of manufacturing, construction and transportation. 

10. The expansion of the Green Revolution in Eastern India by the injection of new technologies would further raise the income level of farmers and individuals living in rural areas. This would further expand the base of the middle class in the agricultural sector.  Dhan Dhanya Krishi Yojana initiated in the budget 2025-26 would further boost the production and productivity in the 100 low productivity districts in India, increasing the income of individuals living in rural areas. This would further broaden the base of the middle class not only in the urban centres but in rural areas also.   

Conclusion 

1. The Indian middle class is an aspirational class. With the increasing income, digitalisation, urbanisation, transformation in agricultural and industrial sectors, the middle class is going to become the most powerful class and the engine of growth of the Indian economy. It is hoped that with the growth of the middle class, Indian democracy will further strengthen. 

2. The rising middle class would be able to surpass the US by 2050 in nominal GDP, becoming the second largest economy of the world after China. Thus, the future of India lies with the growth and aspirations of the middle class.

When President Rule is imposed upon a state in India ?

 Why is it in the news?

1. After the resignation of Manipur Chief Minister N Biren Singh, the Centre clamped President’s Rule in Manipur on 13th February 2025. It must be noted that Manipur has been under ethnic violence for the last three years. The state government was under attack from all quarters because of its mishandling of the situations arising out of tug of war between Meitei and Kuki  communities. This is the 11th time that Manipur was put under President’s rule. However, the assembly has not been dissolved. It has been kept under suspended animation. It means that the assembly can be revived whenever it becomes possible to form a popular government after revoking the President's rule. 

Three types of Emergencies in the Constitution of India 

1. The President can declare three types of emergencies under article 352, 356 and 360. Under article 352, the President can declare a national emergency on the whole India or a part of the territory on account of external aggression, war and armed rebellion. 

2.Under article 356, the President can clamp the President’s rule in a state if he is satisfied that state is not being run according to the provisions of our constitution. 

3. Under article 360, the President can proclaim a financial emergency when the financial stability of our country is at stake. 

Provisions of President’s rule upon state

1. Under article 356 of our constitution, the President is empowered to proclaim a state emergency or President’s rule over a state, if he is satisfied that the state is not being run in accordance with the provisions of the constitution and that the state machinery has broken down.

2.It must be noted that after the proclamation of the President's rule in a state, the Parliament must ratify the proclamation within two months. The President can impose emergency on a state for six months but it can be extended to three years with the repeated parliamentary approval by simple majority of either House. However, after the first year the renewal of emergency can take place if an emergency has been declared in the country or the state or the election commission gives the certificate to the effect that an election can not be held in that state. 

3. If the state emergency is required to be extended for more than three years, this can be done by constitutional amendments. This has been done in the case of Jammu & Kashmir and Punjab, when the President's rule continued for three years. 

4. During a state emergency, the President takes over the entire work of the state executive and the Governor administers the state in the name of the President. The assembly can either be dissolved or it can be kept in suspended animation. During a state emergency, the Parliament is empowered to make laws with regard to the state list. 

5. The state emergency can also be promulgated under article 365, if the particular state is not functioning according to the direction given by the Indian Government. However, after one year it can be extended only if a national emergency has been clamped or the Election Commission is of the view that an election cannot be conducted in that state. 

6.However, the President cannot assume any of the powers vested in a High Court during a state emergency.

What are the circumstances when President rule can be imposed ?

1. Article 356, does not list the various specific circumstances under which the President’s rule can be imposed. It has been left to the judgement of the President to satisfy himself that a situation has arisen in which the Government of the State cannot be carried on in accordance with the provisions of the constitution. It should be noted that the President's rule has been imposed 135 times so far. While in some cases, there were valid reasons, in other cases, the President’s rule was imposed due to political vendetta. However, we can arrive at different circumstances when the Centre was forced to clamp the President's rule over the state. These are : - 

• Political instability/ Hung Assembly- Bihar was put under President’s rule in 2005 when no party secured a majority in the assembly election. The assembly was dissolved and the President’s rule was imposed in 2005. Similarly, in 2013, Jharkhand was put under President’s rule because the coalition government collapsed. 

• Law & Order situation - Because of Babri Masjid demolition and widespread communal riots, the state government of UP was dismissed and President’s rule was clamped. In 2001, Manipur was brought under President’s rule because of severe ethnic violence and insurgency. 

• Militancy - Punjab was put under President’s rule between 1983 and 1985 because of Khalistani movement and widespread terrorism. Similarly, J & K had to undergo continued six years from 1990 to 1996 and again from 2019 to 2024 under President’s rule because of militancy and Pakistan sponsored terrorism within the state. 

• Break up of coalitions of parties - The coalition of BJP and PDP collapsed on account of growing violence in Kashmir. In 2007, the JDS-BJP coalition in Karnataka collapsed because JDS refused to transfer the Chief Minister’s post to the BJP as per the power sharing agreement. The BJP withdrew support and the government collapsed. In 2019, BJP-Shiv Sena split over power sharing. Shiv Sena demanded the Chief Minister’s  post which the BJP refused and so the President’s rule was imposed on 12th November 2019 in Maharashtra. In 2013, the JMM-BJP coalition Government collapsed and so Jharkhand was kept under the President’s rule between 2013 to 2014. 

• Resignation of Chief Minister - In 1989, S R Bommai had to resign because the majority of ruling party MLAs defected. The Chief Minister was not allowed a floor test. In 2025, the Chief Minister N Biren Singh had to resign because he had lost majority in the BJP legislative party in Manipur Assembly. 

• Lack of unanimity among MLAs to choose leader / internal differences in the ruling party - In 1951, the Chief Minister of Punjab had to resign because of internal differences within the ruling party and so the President had to clamp President’s rule.

• Continued public agitations - Assam was kept under President’s rule between 1979-80 because of continued agitation on the issue of illegal migration.  

• Political vendetta - The Janata Government in 1977 dismissed 9 Congress ruled state governments alleging that they have lost the confidence of people. In 1980, when Congress returned to power, it paid in the same coin by dismissing 9 opposition ruled state governments on similar grounds. 

• Continued insurgency in the border states of J & K, Punjab, Mizoram, Manipur, Nagaland, Tripura - Forced the Central Government to clamp President’s rule on different occasions to run  state governments according to the provisions of the constitution. 

• Communal tension - In 1993, the states of UP, Madhya Pradesh, Rajasthan were put under President’s rule on account of widespread communal violence arising out of Babri Masjid demolition. 

• Misuse of the provision for political reasons - In 1959, the first elected Communist Government in Kerala was dismissed and President’s rule was imposed. Similarly, in 1967 and 1969, the United Front Governments of West Bengal were dismissed because of political interference by the Centre. In 1994, S R Bommai Government was dismissed on the ground that it had lost the majority in the assembly but the Chief Minister was not allowed for floor test. 

• Breakdown of constitutional machinery - Nagaland was put under President’s rule in 1975 and 1992 because of the ongoing insurgency. 

• President’s rule imposed due to violation of article 365 - The Centre Government imposed President’s rule over Rajasthan, (1957), Punjab (1951 and 1966), Andhra Pradesh (1954), Nagaland (1975), Karnataka (1971) and Manipur (2001) when centre’s directives were flouted by respective governments.  

Landmark judgement in the case of S R Bommai vs the Union of India

1. In 1994, the Supreme Court gave a landmark judgement. Because of this judgement the frequency of the President's rule became less. For example, between 1950-1994, the President’s rule was imposed 100 times, an average of 2.5 times a year. After the judgement, since three decades, the President’s rule has been imposed 30 times or about once a year. Since 2014, the President’s rule has been imposed 11 times. Of these, the court has struck down the proclamation twice in Arunachal Pradesh and Uttarakhand. The lesser frequency of President’s rule over states was on account of the judgement in SR Bommai case. A nine bench of the Supreme Court of India held that President’s Rule is subject to judicial review and that the Governor’s report is not final. The state legislature must be given a chance to prove its majority on the floor of the House. The President's rule must be approved by the Parliament within two months. If the President’s rule is imposed arbitrarily, the court can restore the dismissed government. The court emphasised that the states have autonomy and the union cannot dismiss state governments at will. Thus, the Supreme Court strengthened the concept of federalism and tried to balance between the Centre and states.  It set a legal precedent whereby a floor test was made mandatory before dismissing a state government. 

Conclusion 

Article 356 has been the most misused article by the Centre. In maximum cases, the Centre Government dismissed opposition ruled state governments on account of political vendetta. The S R Bommai case put a break upon the discretionary and dictatorial attitudes of the Central Government, thereby, making the enforcement of Article 356 and 365 tough. No arbitrary decisions can be taken by the Central Government henceforth, fearing judicial review by the higher judiciary. However, the situation in the border states/ union territories is different where there is still continued militancy and terrorist threats and both these articles are quite useful to tackle internal disturbances.