Effect Of Tariff Hikes On India Difficult To Predict: MPC Minutes

Whether India will be among the countries to be charged with tariffs by the United States is "too early" to say, and how the potential tariffs will affect India is "difficult to predict", according to the minutes of the Reserve Bank of India's last Monetary Policy Committee meeting released on Friday.

"With Mr Trump as the President, this trend of protectionism is only expected to be accentuated further. It is also too early to expect that India will be spared while tariffs will be slapped on Mexico, Canada and China," MPC member Nagesh Kumar said.

There are widespread fears of the world economy going into a deep and prolonged slump with such protectionist trade policies, he said.

The threat of dumping of excess capacities by China with their deep pockets and their access to the Western markets coming under a cloud is also another area of concern, Kumar pointed out.

"Some of our manufacturing sectors have begun to feel the pinch including steel (possibly explaining the negative growth) while labour-intensive consumer sectors, such as garments and leather goods have been facing an onslaught," he said.

With all these factors at play, the case for supporting growth cannot be overemphasised, according to Ram Singh, another member of the panel.

"The risk of imported inflation also does not seem very high...The effect of tariff hikes on India is difficult to predict," he said.

While on one hand, some adjustments in rupee-dollar exchange rate cannot be ruled out, on the other hand, oil prices and other commodities are expected to decrease risk in 2025 and 2026, he added.

Another MPC member Saugata Bhattacharya said that it is important to keep in mind the possible spillovers of frictions in global trade and protectionist policies.

"A global growth slowdown led by disruptions in trade linkages and uncertainty about responses of global central banks might further complicate domestic policy choices," he said.

The most significant near-term risk of accelerating policy easing at this juncture is renewed volatility in external financial conditions, as per Bhattacharya.

Headwinds from geo-political tensions, protectionist trade policies, volatility in international commodity prices and financial market uncertainties continue to pose downside risks to India's growth outlook, he added.