In an interview with Mint, Manoranjan Sharma, Chief Economist, Informerics Ratings shared his views on the Indian economy amid the changing contours of global trade. Below are edited excerpts with the author’s permission.
Given the uncertainty surrounding Trump’s tariff policies, how do you see them impacting the Indian economy?
In the wake of heightened global uncertainty and increased business complexities stemming from US President Donald Trump’s significant policy changes, including sweeping duties, the world is characterised by a maelstrom of uncertainty, which makes it difficult to help shape a more secure, transparent, and resilient financial ecosystem and goes against the grain of orderly growth and globalisation.
With almost 30 per cent of total global spending and about $5 trillion stock of foreign direct investment (FDI) (the largest globally), the USA remains the pivot of the global economy- the real mover and shaker.
Accordingly, planners, investors, and even those at the helm of affairs are wary of the implementation of the US’s upcoming reciprocal tariffs to see how things will unfold.
Given the strong pushback from various countries, Trump has put the stiff measures originally envisaged on hold for 90 days.
Given India’s wide tariff differential with the US, such tariffs were estimated to lead to a humongous $7 billion annual loss (0.18 per cent of GDP) in exports to the US (at 10 per cent broad tariffs), with this rising to nearly $31 billion at 25 per cent tariffs.
But things are in a constant state of churn, with India’s competitors imposing a much higher tariff. Hence, net- net India is likely to gain.
India’s exports to the USA rely heavily on high-value sectors, such as pharmaceuticals and gemstones. India’s imports from the USA comprise energy, advanced technology, raw materials, aircraft, space parts, and electric machinery.
It has, however, to be realised that the crafting of the domestic industrial strategy and raising the scope and level of well-intentioned strategic macro initiatives like Make in India, local for global, productivity-incentives (PLIs), diversifying export basket, and value addition to an altogether newer and stratospherically higher orbit is difficult but by no means impossible.
However, this necessitates coordinated and concerted action by all stakeholders with a sense of urgency. Failure is not an option.
Could Trump’s tariffs trigger global inflationary pressures? What implications might this have for interest rate trajectories in both the US and India?
Trump’s tariffs are expected to lead to an inflationary spiral across the development spectrum, impacting multiple sectors. The impact, however, of such tariffs will not be uniform but will differ because of the level of competition, necessity, and disruption in supply chains.
To be sure, this move will impact the interest rate. It is expected that, should the choppiness continue, the US Federal Reserve might intervene.
Interestingly, this move would be reminiscent of the Bank of England’s emergency action in 2022 following Liz Truss’ mini-Budget. However, the jury is still out on the desirability and the efficacy of the Fed intervention in this issue.
Do you expect the Indian economy to grow at a healthy pace of over 6% in FY26? What key indicators support this outlook?
We expect India’s GDP growth to be 6.5 per cent in FY26 because of good growth in the agriculture sector, resurgent rural demand, and rising urban consumption with an accent on discretionary spending.
Inflation is well within the threshold defined in terms of the RBI’s inflation-targeting framework. While sectors like automobile, auto-components, IT, machineries, chemicals, gems and jewellery, certain agro-based and steel-based products may be hit because of Trump’s tariffs, the broader macroeconomic impact will not be more than 20 bps.
What are the major challenges that could weigh on India’s domestic growth going forward?
At the present juncture, the Indian economy faces several challenges in its pursuit of steady 7 per cent growth in GDP- the challenges of unemployment, significant income inequality, and a reliance on agriculture. Infrastructure deficits, low levels of national and per capita income.
There are also issues of containing inflation within the MPC’s comfort band, fiscal prudence and heightened global uncertainties.
To what extent can RBI’s rate cuts and recent income tax relief measures boost consumption? Could these steps significantly support economic momentum?
RBI’s rate cuts together with the consumption boost in the recent Union Budget are contextually significant in driving growth and distributive equity forward. Given the global cues and the needs of the domestic economy, such measures will provide a growth trigger to the Indian economy.
Do you believe Trump’s trade policies could lead to a structural shift in global trade dynamics? If so, is India likely to emerge as a beneficiary or face setbacks?
Trump’s policies will lead to a paradigm shift in the dynamics of international trade. But in this intense jockeying for a greater market share of the global pie, India is much better off than most other countries because India is largely a domestically driven economy, and the rate of tariffs on Indian exports is much lower than in other countries. But this is a constantly evolving situation. Hence, we must be careful and vigilant to ward off any nasty surprises.
ABOUT THE AUTHOR
Dr. Manoranjan Sharma is Chief Economist, Infomerics, India. With a brilliant academic record, he has over 250 publications and six books. His views have been cited in the Associated Press, New York; Dow Jones, New York; International Herald Tribune, New York; Wall Street Journal, New York.
