Trump tariffs can have three-round impact on India's growth: CEA V Anantha Nageswaran

CEA V Anantha Nageswaran, Donald Trump

Chief economic adviser V Anantha Nageswaran has said US President Donald Trump's tariffs will impact India’s growth, with the reciprocal duties, now paused for 90 days, having a “three-round” effect on the country.

Speaking to The Indian Express, Nageswaran said the first would be the impact on the country and consumers in the US, India’s largest trading partner.

The second part is whether India is better off than other countries and if its exports to those economies would be affected if American duties hit their GDP.

The third effect would be the impact on the financial markets, which would have a spillover effect on market sentiment and consumption.

"So these are all the factors that will, in some combination or the other, have an impact on the growth outcomes this year," Nageswaran said.

Trump on April 2 announced widespread tariffs on goods imported to America by its trading partners, singling China for the harshest of his so-called reciprocal duties.

Global stock markets crashed after his “Liberation Day” speech, with Indian benchmarks the Sensex and the Nifty taking a huge hit as well. Trump announced a 26 percent tariff on made-in-India goods.

As markets bled and fears for the global economy grew amid trade chaos, Trump announced a temporary “pause” on the tariffs for most nations but China. He then followed up with dropping tariffs on chips, mobile phones and other electronic devices, including those made in China.

While markets reacted positively to the latest developments, looming tariffs and Trump’s flip-flops on duties have only added to the uncertainty. As China refuses to blink, the last word on the trade war is yet to be said.

The CEA did note that the fall in energy prices in these uncertain times is the silver lining. Private companies must take this opportunity and boost growth, taking advantage of such a large domestic economy, Nageswaran said.

The government should also create policies to lower the cost of doing business and make it easier to operate in the domestic market. This will help absorb the impact of tariffs.

On April 9, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points (bps) and changed its stance to “accommodative” from “neutral”.

The change in stance hints at more rate cuts, subject to how inflation behaves, Nageswaran said. Interest rates, however, have a limited role in boosting capital formation. "Interest rates spur real estate investment, real estate-related purchases by households boost consumption spending more than they boost investment spending. So, that is the role that interest rate cuts play," he said.