US Tariffs: Neelkanth Mishra Explains How India Can Weather This Economic Challenge

India can weather the economic turbulence created by US President Donald Trump's tariff policies by making its export industries more cost-competitive and refraining from reciprocal actions, according to Axis Bank Chief Economist Neelkanth Mishra.

With regards to India's tariff differential with Asian peers, Indonesia and Vietnam, Mishra said that to make up for the five percentage points gap, the country needs to make its manufacturing more cost-competitive in areas like apparel and footwear.

"Steps have to be taken in terms of policies to support industries and bring down the cost of manufacturing. Only monetary and fiscal subsidies will not be sufficient," he said.

The US has decided to levy a 25% tariff on Indian merchandise exports, besides an additional penalty for trade links with Russia. Several analysts have projected up to 50-basis-point hit to India's GDP growth.

Mishra sees exporters to be less impacted by the tariff costs that will be passed on to American consumers.

Moreover, Indian generic pharma shipments will also be less severely impacted in their largest market, given Trump's intent to lower prescription drug prices.

Mishra also acknowledged the Modi government's "balanced view" when it comes to dealing with the US and said India does not need to respond to periodic barbs from Trump that, in his view, are negotiating tactics.

"We need to raise our domestic demand. We have to unlock supply-side restrains on real estate, good quality housing adds to productivity, constructions create jobs and demand for materials. That then creates a multiplier," he said.

A US trade team is set to visit New Delhi later this month for further negotiations.