Chief Economic Adviser V. Anantha Nageswaran on Thursday said the additional US tariffs of 25 per cent on India levied over the purchase of Russian oil won’t continue beyond November 30, considering the talks held earlier this week between the US and Indian negotiators in New Delhi.
“Geopolitical circumstances may have led to the second 25 per cent tariffs, but considering recent developments in the last couple of weeks… I do believe..I have no particular basis to say so… just my intuition… the penal tariffs won’t be there beyond November 30,” Nageswaran said at an industry event in Kolkata.
“ ..its not a statement based on concrete indicators or evidence… its my hope that given the recent development which we see in terms of both countries finding an off ramp and with US negotiators in India during the first two days of the week… I would believe there will be a resolution in the next couple of months on penal tariff and also on reciprocal tariffs,” the CEA said.
Talking about the impact of tariffs on different sectors of the Indian economy, Nageswaran said from a systemic perspective, the impact is relatively marginal. “That is not to say there will not be second and third round effects if the tariff persists in terms of sentiment impact, capital formation, etc. But purely on export terms, given the fact that we are a country that relies on domestic demand, the impact will be less than it would be for countries which have a much greater share of exports in GDP,” he said.
The CEA explained that India’s distribution of growth is interesting and reassuring. “About 60 per cent comes from consumption, 30 per cent from capital formation, 21 per cent comes from exports, and 23 per cent goes towards imports, so we have a large domestic economy which insulates us from what is going on in the outside world to some extent,” he said.
Nageswaran’s speech comes after the Commerce and Industry Ministry on Tuesday said the meeting with US negotiators was positive and forward-looking. “It was decided to intensify efforts to achieve early conclusion of a mutually beneficial trade agreement,” the Ministry said.
CEA on India’s political and economic stability, and growth
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The CEA said India has had more political, economic and fiscal stability in the last several years compared to many other countries and that it is giving us a good foundation and platform to continue on the growth path, especially in the current trade-related uncertainties.
“..we are being better than other countries, not just in the immediate first quarter but the post-Covid recovery, if you look at what’s happening in the immediate neighbourhood or in the western countries today, for example, there have been multiple changes of governments in several countries, Prime Ministers, etc., I think we have had more political and economic stability in the last several years combined with fiscal stability and all of that is giving us a good foundation and platform to continue on the growth path especially in the current trade-related uncertainties, they’ll dissolve reasonably quickly… ” the CEA said.
On growth, the CEA said that manufacturing and services contributed to GDP growth in the first quarter, while agriculture was a bit slow. He said rural wages are rising very rapidly, and going ahead, agriculture should grow more than the first quarter.
“So we will see a much bigger contribution of agriculture to the value added in the coming quarters, which will also offset to some extent the trade-related impact which will come in the coming quarters from the tariffs if they persist. But as I said, I hope they dissipate soon,” he said.
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The income tax cut, GST relief, employment-linked incentive schemes, along with low food inflation, are going to contribute to a pickup in urban demand, which is looking weaker on the surface, he said.
The CEA said much of the urban consumption may also be getting diverted or shifting towards non-listed companies or through UPI payments to smaller enterprises, which are not getting captured in the quarterly growth data.
“..you can see that every single category, whether it is utilities, packages, candies, cigarette shops, bakeries, drugstores, eating places and restaurants, the growth rate is at least 20 per cent annualised in the last 13 months, and in many cases the growth rate is well ahead of 30 per cent. Going ahead, we may not be measuring urban consumption as well as we would like to by relying only on data from listed fast-moving consumer companies…” Nageswaran said citing National Payments Corporation of India (NPCI) data.
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