Chief Economic Advisor V Anantha Nageswaran has said that the impact of sweeping tariffs imposed by US President Donald Trump will be shortlived, adding that there would be “certain recalibration happening from the other side” on it.
Speaking to The Indian Express, Nageswaran said that the full impact of the additional 25% punitive tariffs will be felt during the next fiscal, adding that the second and third quarters will be critical this year.
Nageswaran expressed hope that there should be a resolution for the additional 25% tariffs imposed as a penalty for India's continued purchase of Russian oil. “So the fiscal second and third quarters will be critical, but I hope by then the second 25 per cent (tariff) would have been resolved. If it continues into the next financial year and lasts, that would be a huge challenge both in terms of employment and GDP growth,” he said.
Explaining why the additional 25% tariffs may not stick for long, the CEA said that there are signals that US realised that higher tariff on India won't lead to the desired results and may in fact prove to be counterproductive.
Nageswaran acknowledged that he did not have concrete evidence to support his view but, based on recent mixed signals, believed the second 25 per cent tariff would be "short-lived rather than long-lived".
Talking about measures India should take to offset the impact of higher tariffs, the Chief Economic Advisor said that the country was concentrating on policies beneficial in the long run rather than reacting directly to tariffs.
He noted that India’s purchases of fuel and defence products from the US had risen, alongside increased overseas direct investment by Indian businesses in the US over the past two decades.
He added that India’s engagement with the US was progressing positively. “If we continue to do what we are doing, I think there will be certain recalibration happening from the other side (US) in my view because the current approach is not going to be a long-term positive thing ...".
He also said that the next-generation GST reforms, under which tax rates of several essential goods and services have been reduced, will boost consumption in the economy. He added that the gains would certainly help offset export losses, though whether they would be large enough to fully compensate was a matter of calculation.
India currently faces cripping 50% tariffs on its exports of goods to US. This includes 25% reciprocal tariffs announced by Trump originally plus an additional 25% punitive tariffs for India's purchase of Russian oil.
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