After the 50 percent tariff imposition on India by the U.S., "uncertainties are building up on multiple fronts and there could be some turbulence ahead for India in the near term," Sandeep Bagla, the CEO at TRUST Mutual Fund, said in an interview to Moneycontrol.
He hopes for a quick and fruitful resolution due to negotiations, but he feels it does not appear to be possible in the complicated geopolitical situation that the world is in today.
According to him, the entire tariffs (50 percent) if imposed, are a real threat to the future growth of India’s external economy. "While India is a largely domestically focused economy, the expectations about increasing global reach would have to be toned down," he said.
With the 50% tariff threat — similar to the one imposed on Brazil — do you believe Trump is desperate for a strong trade deal with India?
I think that geopolitics is becoming an increasingly important factor in trade relations with the US. India is unlikely to wrangle a deal that is favourable as it does not want to relent to the USA’s wishes on sensitive areas like agriculture. Trump also wants to weaken the BRICS construct. Uncertainties are building up on multiple fronts, and there could be some turbulence ahead for India in the near term.
Do you foresee a significant impact on overall economic growth if the hefty 50% tariff rate comes into effect?
While one can calculate the approximate impact on the value of trade that will be affected by the imposition of a 50% tariff, I feel it does impact sentiment adversely. From an outlook of improving the relationship with the US, we will be dealing with hostilities and an environment of doubt. The second-order derivatives of such a trade deal will be incrementally negative. Better to exercise caution in the short term.
Is the tariff threat a temporary risk for equity markets? If so, does that imply markets will shift focus to other factors — such as earnings — from September or October onward, especially once a deal is reached?
Tariffs, if imposed, are a real threat to the future growth of India’s external economy. One must understand that while tariffs are open for negotiation, they will be in place for a long time to come. There would be pressure on both volumes and margins. While India is a largely domestically focused economy, the expectations about increasing global reach would have to be toned down.
Do you think the proposed 50% tariff could alter the RBI’s approach? The central bank has indicated it wants to wait for further transmission of the front-loaded rate cuts to the credit markets and broader economy.
Tariffs would impact investment and corporate sentiment. While RBI may desire a pick-up in the economy, lower rates are not sufficient for the economy to pick up; there has to be the will to borrow more as well.
Tariffs could be incrementally inflationary at an aggregate level as the principles of competitive advantage are getting compromised, leading to overall systemic inefficiencies. With inflation emerging as a new real threat, the hands of central banks are a bit tied in terms of trying to support economic growth.
Do you expect the government to make significant policy changes to offset the impact of the tariffs to a large extent?
No
Why has Trump excluded pharmaceutical and electronic goods from the additional 25% tariff list?
They would have realised that there are certain goods that they need, and increasing tariffs would not be in their best interest.
Do you see any potential breakthroughs emerging from Prime Minister Modi’s visit to China, especially in the context of Trump’s ongoing tariff war?
I see a prolonged state of negotiations. While I hope for a quick and fruitful resolution, it does not appear to be possible in the complicated geopolitical situation that the world is in today. While the longer-term prospects of the domestic-facing economy are well supported, it would be prudent to be prepared for some volatility in the near term.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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