Govt Working Overtime To Shield Exporters From US Tariffs, But What's India's Plan? CEA Nageswaran Explains

(MENAFN- Live Mint) Chief Economic Advisor (CEA) Anantha Nageswaran on Saturday said that the Indian government, along with various stakeholders, is“working overtime” to cushion the effects of an additional 25% tariff imposed by the United States on Indian exports, which brings the total duty to 50%.

Speaking at an event organized by the Indian Chamber of Commerce, he mentioned that this unexpected development, which took effect on August 27, has prompted immediate discussions in the last three to four days, involving exporting bodies, private sector promotion agencies and the ministries concerned.

The Ministry of Finance and other ministries are formulating a strategy to provide both a "time cushion" and a "financial cushion" to the affected sectors so they can "weather the present storm and also emerge stronger,”PTIreported.

Catalyst for action

Nageswaran sees the crisis as an opportunity for action. He said that minor or major crises often act like catalysts, providing focus and purpose for all sectors of the society, including government, private sector and households to take necessary steps that might otherwise be delayed.

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He has also urged the private sector to use this situation to diversify their export destinations, be responsive to changing consumer preferences, invest in product innovation and R&D, and overall improve business practices to enhance competitiveness.

Measures that can mitigate the impact

To counter the potential negative impact of the Trump tariffs, the government is implementing several measures, with an aim to stimulate domestic demand and support employment.

• Tax relief: A "huge tax cut" was announced in February for middle and upper-middle-income households, which is expected to increase household disposable income, leading to more domestic demand .
• GST rationalization: Further relief by increasing consumption is anticipated through rationalization of GST rates, reduction in the number of slabs, and simplification of processes which is expected to be discussed at the upcoming GST council meeting.
• Trade diversification: India is actively pursuing trade diversification through free trade agreements with countries such as the UAE and the UK, and ongoing discussions with Oman and Bahrain, some of which could materialize before the year-end, hence giving some relief to exporters who lost competitive edge in the US.

Silver linings in the economy

Nageswaran expressed hopes that tariffs would be "short-lived" and that "an understanding of the importance of the larger dimensions of the India-US relationshi will eventually prevail.” He also highlighted several "silver linings" that point to a robust and improving economic environment.

• GDP growth: India's real GDP grew by 7.8% year-on-year in the first quarter of the current financial year. Nominal GDP growth came in at 8.8%, exceeding private sector economists' expectations.
• Good deflation: The lower nominal GDP growth compared to previous quarters is attributed to a decline in input costs such as crude oil, industrial metals, and raw materials, while enterprises' pricing power remained intact.

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• Strong manufacturing: The sector's Gross Value Added (GVA) rose by 10.1% in nominal terms and 7.7% in real terms, indicating its strength and providing hope that full-year nominal GDP growth will stay near the 10.1%, as assumed in the Union Budget.
• Fiscal prudence and credit rating: India's fiscal deficit has significantly reduced, leading to a credit rating upgrade from Standard & Poor's. This has lowered the government's borrowing costs and reduced the cost of capital for the private sector.

Job loss due to US tariffs

When Nageswaran was asked about job losses due to US tariffs on Indian goods, he stated that any job losses, if they occur, will be limited to those export-oriented firms that are highly exposed to the American market, ANI reported.

"Some of them will be able to find alternative markets , and some of them may also decide to take a medium to long-term view, that if the ongoing uncertainties related to the tariffs are going to be contained and temporary, they may choose to look beyond that, and not necessarily let go of their workers," he said.

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"...there could be compensation coming from higher domestic demand. We have had a very good monsoon season. Agricultural rural demand will be rising. Rural wages are actually in real terms, rising faster...," he added.

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