US President Donald Trump’s 50 percent punitive tariffs, the world’s highest, have dampened business confidence as American orders dry up for Indian exporters.
As hefty US tariffs cast doubt on forecasts, India’s financial markets and economy are providing contradictory signals about the economic outlook, making it more difficult for officials to encourage activity.
The GDP probably grew by more than 7 percent last quarter, while inflation is at a historic low of less than 1 percent, mostly due to a sharp decline in food prices. While the stock market is booming, the rupee has fallen to an all-time low of almost 90 to the dollar. After the government lowered taxes last month, imports increased, but exports fell.
As exporters witness a decline in US orders, President Donald Trump’s harsh 50 percent tariffs, the highest among most major economies, have affected sentiment. Although Prime Minister Narendra Modi is attempting to boost the economy by encouraging corporate and consumer spending, the contradictory economic indicators indicate that investors are not yet persuaded about the future.
ANZ Banking Group economist Dhiraj Nim believes the contradictory nature of economic data indicates that the country’s economy isn’t reaching its full potential. He explains this by pointing out a disparity: while some business sectors show robust performance, others are struggling with reduced investment demand and a decrease in new orders.
Thus far, the administration has adhered to its projections, which call for growth of 6.3 percent to 6.8 percent for the year ending in March. According to economists polled by Bloomberg, data scheduled for release on Friday may indicate that the economy grew by 7.4 percent during the July–September quarter.
However, some sectors’ fundamental weaknesses are hidden by the top numbers. Government spending, which has increased by 40 percent so far this fiscal year, is driving growth, but private investment is still slow, according to ratings agency CareEdge.
Even though consumption increased by 7 percent during the April–June quarter, it was still less than the 7.8 percent growth in the GDP as a whole.
According to Alexandra Hermann, head economist at Oxford Economics, “consumption is growing; it’s doing well, but it could be so much better.” “In a nation like India, consumption growth should ideally outpace GDP growth.”
Short-term boost and policy risks
The most recent segment focuses on the short-term economic boost provided by the September GST cuts before the festive season, leading to record sales in vehicles and a temporary spike in GST collections. However, this is tempered by economists’ doubts about its sustainability, with experts like Aurodeep Nandi noting the overall “more measured pickup” once pent-up demand is excluded. The key risk remains the external environment, specifically the high US tariffs. Economists like Dhiraj Nim stress that the tariff risks are starting to manifest, posing profound “ramifications for jobs and incomes in the low-skilled sectors” if a trade deal is not quickly secured. Despite officials’ optimism about a trade deal, the IMF has lowered its growth forecast for India’s upcoming fiscal year to $6.2$ per cent due to these tariffs. Indian authorities counter this view by highlighting the country’s successful export market diversification into Asia, which Soumya Kanti Ghosh states will increasingly “buffer India against external shocks.” The Modi government is concurrently preparing a legislative push, including the implementation of labour reforms, to boost domestic investment and employment.
SOURCE – BUSINESS STANDARD
