Global tariff uncertainty may impact growth, but India set to weather the storm: Garima Kapoor

Time of India

23-04-2025

US' biggest challenge is likely to be in the near term how the movement on yields is. If the 10-year yield and the yields in US respond far too aggressively, then the financial conditions are likely to tighten very-very sharply.
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"I would still say everything else being equal, notwithstanding the correction in global economy that we anticipate, India should still grow with a handle of 6% to 6.2% and the assessment is fairly realistic," says Garima Kapoor In India's case the 6.2% that IMF has set out, I would say, is fairly realistic, although it is 30 basis point below what RBI as well as what the ministry had put out in terms of expectations.In my assessment the estimates of both RBI and the Ministry of Finance should come down, get revised downwards, as we have more clarity on how the trade related uncertainties pan out. But given everything else and given that India's business cycle is turning with both government and RBI turning pro growth, the outlook for rate becoming more clear and with the more aggressive rate cut cycle, crude below 67-68 and dollar below 100, the tailwinds for Indian economy in terms of cyclical terms are far more than what they were six months ago.So, I would still say everything else being equal, notwithstanding the correction in global economy that we anticipate, India should still grow with a handle of 6% to 6.2% and the assessment is fairly realistic.See, all depends on what kind of discussion and what kind of consultation both countries are able to bring on the table. But fair to assume that US' average tariff which used to be about 2-2.5% or below there is unlikely to stay there. Its average tariff is expected to come up, maybe in the handle of about 10 odd percent.It is unlikely to stay at 140% or 150% for China what it is, but 10% probably should be the new normal that the world economy should work with. Now, having said that issues between US and China do not just restrict to trade but they also restrict to a variety of other things including tech war and patents and otherwise security adjustments.So, in my assessment the uncertainty phenomena which has gripped the world economy is likely to persist. While the second half can be anticipated better with expectation that there will be some bit of negotiation that is likely to happen and some bit of clampdown from the current race between US and China, but it is likely to be a new normal notwithstanding the clampdown because we have never seen this kind of average between US and China. So, in the near term, we are likely to probably address greater issues of uncertainty rather than issues relating to tariff related hikes.Current data whichever and whatever has come down till early part of April and till the end of March does not indicate that we are likely to hit recessionary situation immediately. And if this tariff related uncertainty is clamped down and there is much less uncertainty than what it was about a week or ten days ago, then things should look better.Indicators such as consumer confidence which came out with in month of March in US did indicate some bit of uncertainty relating to tariff, already reflecting in consumers' behaviour. However, remember we are entering this phase with relatively stronger corporate balance sheets. US' biggest challenge is likely to be in the near term how the movement on yields is. If the 10-year yield and the yields in US respond far too aggressively, then the financial conditions are likely to tighten very-very sharply.And if the financial conditions tighten, then one should anticipate Federal Reserve to step in because if the tightened financial conditions persist for far too long, then US recession is more likely. But given the current macroeconomic backdrop and the in coming data, it does not seem like we are hitting recession immediately anytime soon, notwithstanding of course the one thing that you should watch out for as I mentioned is the movement of interest rates and the currency markets.