‘Effect of US tariffs on Indian economy will be manageable; won’t derail growth prospects’: S&P
The effect of US tariffs on the Indian economy would be manageable, and the overall impact could be marginal with no derailment of India’s long-term growth prospects, said rating agency S&P Global. The Trump administration has imposed a 50 per cent tariff on India, and has threatened higher, secondary tariffs if New Delhi does not stop buying Russian oil.
S&P Global said: “We believe the effect of US tariffs on the Indian economy will be manageable. India is relatively less reliant on trade and about 60 per cent of its economic growth stems from domestic consumption. We expect that in the event India has to switch from importing Russian crude oil, the fiscal cost, if fully borne by the government, will be modest given the narrow price differential between Russian crude and current international benchmarks.”
The rating agency, despite Trump’s tariffs, assigned a stable outlook and upgraded its ratings to ‘BBB’ from ‘BBB-’.
“Though the US is India’s largest trading partner, we do not expect the 50 per cent tariffs (if imposed) to pose a material drag on growth. India’s exports to the US constitute about 2 per cent of GDP. Factoring in sectoral exemptions on pharmaceuticals and consumer electronics, the exposure of Indian exports subjected to tariffs is lower at 1.2 per cent of GDP. Though this may eventually result in a one-off hit to growth, we envisage the overall impact to be marginal and will not derail India’s long-term growth prospects,” it said.
S&P Global Ratings Director YeeFarn Phua had voiced similar sentiments on Wednesday. Phua said Trump’s tariffs are unlikely to impact India’s economic growth “largely because India is not a very trade-oriented economy”.
The agency said that the performance of the Indian economy in recent years highlights its historic resilience. It predicted solid growth projections. The agency also stated that India’s corporate and financial sectors have stronger balance sheets than before the pandemic. “We recognize, however, that India’s high growth rates need to be sustained over a long period of time for the economy to create sufficient jobs, reduce inequality, and reap the full benefit of its favorable demographics,” it said.