Diversifying Russian oil imports may add only $4-6 billion to India's import bill, says Anubhuti Sahay of Standard Chartered Bank

Edited excerpts:

How will tariffs impact the Indian economy going forward?

Given that there is a fair bit of tariff uncertainty, and it's likely to linger on, and will have a negative impact on growth. To quantify the impact, we will probably need a lot more clarification on where the final tariff rates are, and how long we take to reach that equilibrium point. Initially, when Trump announced a 25 percent tariff, it might have looked high on an absolute basis, but when you compare it with the averages of other countries, the differential was not more than 5 percent.

The gap, or impact on GDP, was closer to 25 to 40 basis points. At 50 percent, almost 50 percent of our exports to the US become non-tradable, priced out, and the impact then would be much larger. But the additional 25 percent is not effective as of now, it will only become effective if negotiations are not successful in the next 21 days.

What is the barrier in the negotiations?

We will have to go by the popular narrative, and as highlighted, the barriers, one is the need to ask to diversify away from Russian oil, and secondly, we also heard about opening up of sensitive sectors like agri and dairy.

Now, I think diversification away from select countries is still possible. Our view is that it will not increase the import bill by more than $4-6 billion. Whenever such trade negotiations happen, there is a fair bit of politics which gets involved.

At this juncture, negotiations getting delayed is not only about disagreements on certain economic issues, it has also spiralled or spilled over to this whole viewpoint around the geopolitics or political ties with other trading partners.

If negotiations with the US happen in a positive way, can we expect a similar agreement what we had with the UK?

Getting the same level of agreement as the UK is unlikely. If we factor out the additional 25 percent which has been announced on back of Russian purchases, I think probably the 25 percent tariff at the most is likely to be brought down towards 20 percent because for rest of the world also the tariff range is between 15 and 20 percent and that range has been announced once those countries have agreed on certain investment commitments, like South Korea, Japan, and the EU, they have agreed to invest a large amount or they have agreed to open up certain sectors. At the best we might just go down towards 20 percent.

The UK FTA was at a different level of tariff, and I don't think it will be equivalent of that, but the US is a major consumer, and we need to look at the tariff that we have to pay to the US vis-a-vis what other countries are paying rather than comparing it with India-UK or India-EU.

Can FTAs with other countries nullify the impact of US tariffs if negotiations do not take place?

The US is the largest consumer; it's our largest export destination. The partnership between the US and India has to look at it more comprehensively. It's not only about merchandise trade, it's about investment relationship, it's about the services sector trade also.

If a positive negotiation, which is agreeable to both sides, is not reached, then it might not work; it's not possible to assume that the US can be replaced by the rest of the world. Because we run a trade surplus with them in goods and services. The US is important from tech partnership, so one has to negotiate and reach a mutually beneficially agreement with them.

Will the government stop buying Russian oil to avoid tariffs?

These are very difficult questions to answer because it's not only about economics, where the costs in our view are limited. It involves a fair bit of geopolitics, our historical ties.

We did an analysis where we compared what if we stopped Russian oil completely and shift all the demand of oil from Russia to the US. Now the price gap between Russian and the US oil, is anywhere between $6 to $10. If Russian oil share from 35 percent today goes to zero, and that 35 percent goes to the US, then the additional bill, import bill for us, is just $4 billion to $6 billion. It's not massive. It is very manageable in our view. The bigger challenge for India and its import bill will come if Russia gets cut out of the global oil supply because it will impinge a larger cost to us, but that also should be manageable.

How much import inflation it will have on CPI inflation?

Not more than 5 basis points. Indian consumers are paying retail fuel prices which are equivalent of almost 80-85 dollars per barrel. Oil prices today are at 67, so if you start paying a price of 77, impact on inflation is likely to be very limited. Even if it is passed on to the consumer, our sense is it won't be more than 3 to 5 basis points.

Do you think the Reserve Bank of India (RBI) should intervene more in forex to curb volatility amid tariffs row?

As long as it is not becoming a sharp sell-off in rupee and not breaching certain levels, it's perfectly fine to not to intervene. One has to allow for the rupee to move in a wider range to induce the right kind of hedging behaviour.

Under the new governor, we have clearly seen more two-way volatility than we have seen in the past. Each governor had their own right reasons to follow, whether they wanted to keep rupee at a certain level or they want to allow rupee to move both ways.

The RBI cannot do everything for the market at large, some hedging is required, and if you are trading in the 84 to 88 range, it probably also pushes the corporate to take the right side whenever they are getting into any kind of transactions.

Do you think that the RBI's August policy was dull and much could have been done?

In our view, the August policy decision and tone were appropriate and prudent. As the MPC had already front-loaded its monetary policy easing (100 bps of repo rate cuts in five months plus a yet-to-kick-in cash reserve ratio cut of 100 bps from September), urgency to ease was limited as transmission is still in progress. True that an uncertain external sector environment raises risks to growth. If tariff tensions continue and an improvement in H2 growth diverges from expectations, further support for the economy could be considered. Similarly, if FY27 headline CPI stays close to 4 percent, rate cuts could be considered. However, such clarity must emerge first. For now, we expect a status quo for the rest of FY26, but closely watch trade developments and economic data.

Why is the RBI focusing more on the weighted average call money rate?

The problem for the market comes when you say this is my operating target, but then if it starts deviating significantly from the repo rate, then there is a problem; it becomes far more challenging for the market, rather than just looking at the weighted average quality. I mean, TREPs made a lot more sense.

When it starts, then you have to keep on fine-tuning, because it's a very smaller segment.

What consequences will the other countries have from the tussle between US Fed Chairman Jerome Powell and Trump?

First of all, the independence of the central bank matters a lot, and I think the market acknowledges the value that an independent central bank brings to the economy at large. Our view is that Fed is a large, and the decision is not made by just one person. Powell is one of the voters. He is not the only voter, and we believe that most of the FOMC members are fairly independent. You can always have a compositional change between Doves and Hawks. But the FOMC has a lot of members. At the end of the day, FOMC members will be eventually driven by data.