Will India tariff woes be Trumped by RBI response?

Synopsis

The US medication has announced a 10% minimum tariff complaint connected assorted countries, with peculiarly precocious rates connected Asian and European nations. Reciprocal tariffs equivalent to ~50% of the combined estimated complaint of US export barriers person been imposed. India faces 27% tariffs, portion China confronts 34%, perchance sparking a planetary commercialized warfare and economical maturation concerns.

The US medication unveiled a minimum tariff complaint of 10% connected countries crossed the globe, large and small. From the imposed reciprocal tariff rates, Asia and Europe connected the higher extremity of the tariff scale. In Asia, the highest complaint of reciprocal tariff is connected Cambodia and Vietnam. India faces reciprocal tariffs of 27% portion China faces reciprocal tariffs of 34%. Indonesia and Taiwan are facing higher tariffs than India astatine 32%. Mexico and Canada are exempted from caller tariffs, portion the antecedently announced 25% tariff connected autos is to instrumentality effect from April 3, 2025. Reciprocal tariffs to the equivalent of ~50% of combined estimated complaint of tariff and non-tariff barriers faced by US exports successful the respective countries person been announced. A retaliation mightiness enactment the planetary economy successful a trade war. The efforts to scope a bilateral statement betwixt India-USA provides anticipation and scope to bounds the interaction of these reciprocal tariffs levied connected India.

ETMarkets.com

Source: Reciprocal Tariffs, White House

If these tariffs were to travel into effect successful their existing form, starting April 9, 2025, it would beryllium the onset of a acheronian hr for planetary maturation and escaped trade. Although determination is uncertainty astir the strength of interaction connected each state and sectors, determination is simply a wide statement that the tariff hike implications are antagonistic for planetary growth. While countries connected the receiving extremity of the tariffs volition beryllium disquieted astir economical growth, particularly export focused nations specified arsenic China, Vietnam, the USA mightiness beryllium successful for a treble whammy of tariff-led higher prices and subdued economical growth; complicating the argumentation making for the US Fed. The marketplace reaction, erstwhile viewed from the question successful US treasury yields, is signalling maturation worries going ahead. To forestall the USA from slipping into a recession, markets person built-in expectations of a softer monetary argumentation stance by the US Fed successful the forthcoming argumentation to statesman with.

The Asian and the Emerging Asian economies, successful particular, would proceed to look headwinds from the planetary developments and imaginable travel of capital. However, arsenic acold arsenic the susceptibility to the USA’s caller commercialized barriers done accrued tariffs is simply a relation of the publication of exports to home economical growth. India’s exports to the USA arsenic of CY24 amounted to US$ 80 billion. Additionally, the Pharma assemblage which has a stock of astir 10% successful India’s exports handbasket to the US remains exempted from reciprocal tariffs, astatine slightest for now. Any contraction successful full exports to the USA would beryllium maturation antagonistic with analysts/economists estimating it to shave-off astir 0.1-0.5% of India’s GDP growth. However, we judge that the existent interaction of the reciprocal tariffs connected India’s economical maturation would beryllium overmuch much nuanced. For now, the mode the satellite is viewing these steps is however worse disconnected “I americium compared to you” connected the tariff standard – and successful this respect India is amended connected the ‘relative disadvantage’ vis-à-vis the Asian peers which are facing overmuch higher tariffs. Hence, the contiguous interaction connected India is apt to beryllium modest. In the imaginable forthcoming seismic displacement successful planetary commercialized and planetary growth, portion India is not isolated, it is somewhat insulated fixed a beardown depletion basal supported by authorities infrastructure spending.

Amid these headwinds and muted interaction connected home inflation, the absorption truly shifts to US recession and planetary maturation remains astatine hazard of a antagonistic maturation daze successful the ensuing quarters. This reinforces our presumption that the RBI monetary policy committee (MPC) erstwhile it meets connected 9th Apr volition stay successful the accelerated lane. We spot the MPC chopped the argumentation complaint by 25 bps with accrued anticipation of a alteration successful its stance to accommodative from neutral and scope of further ~50 bps complaint cuts successful the offing. While the currency facet mightiness kick-in were the beggar-thy-neighbour policies cascade owed to the tariffs, we believe, astatine this juncture, the MPC would respond much to home factors of ostentation and growth. Having said that, monsoons volition beryllium cardinal to way for timing and gait of argumentation action. Meanwhile, we judge the RBI volition proceed with its liquidity steps to support the systemic liquidity conditions good into surplus specified that outgo of borrowing falls swiftly.

Tariffs are expected to beryllium planetary maturation antagonistic and worse if retaliatory tariffs were to travel and the markets stay acrophobic astir US recession. While the maturation interaction for India is expected to beryllium overmuch much nuanced, we judge that these tariff woes and concerns volition beryllium trumped by the RBI measures of casual liquidity which has aggressively brought the strategy liquidity into the surplus and spell casual connected argumentation stance and argumentation rates. RBI’s proactive attack has created a lawsuit for deeper complaint cuts and successful this backdrop, we proceed to support a affirmative duration bias crossed our funds. We urge investors to enactment invested and adhd duration to their portfolios wherever imaginable taxable to their hazard instrumentality frameworks.

ETMarkets.com

Source: RBI, Bloomberg. Data till April 3, 2025

(The writer Shriram Ramanathan is CIO-Fixed Income, HSBC Mutual Fund. Views are own)

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