US Tariffs: India Preparing For Worst-Case Scenario, Says Jefferies

Following a meeting with senior bureaucrats and experts, analysts at Jefferies have highlighted key areas of economic uncertainty and sectors which are likely to face tariffs.

Jefferies observed the government had largely adopted a ‘hope for the best, prepare for the worst’ stance on US tariffs. It also noted that while India’s relations with China were improving, the normalisation process could take over a year.

The overall sentiment was one of cautious optimism, with the government bracing for potential tariffs while simultaneously driving a domestic push through reforms.

The rationalisation of the Goods and Services Tax is expected to be finalised soon after more than a year in the making. This move aims to streamline tax slabs, potentially reducing rates on various goods, which should boost domestic consumption without a major adverse impact on the government's fiscal position. The brokerage is of the opinion that this will stimulate the domestic economy.

"The reforms should make this a simpler taxation system with likely lower evasion. We believe 2W, 4W, cement, aircon are the key beneficiaries," said the note.

India is preparing for a worst-case scenario with regard to US tariffs, even as hopes for an improvement in the situation persist.

Despite these potential trade headwinds, the brokerage believes India's overall economic fundamentals are strong enough to withstand the pressure. The government is planning to support certain employment-heavy sectors with measures such as credit guarantee schemes (similar to Covid times) in response to tariff challenges, Jefferies said.

This could help India in ramping up electronics production, improving fertiliser and rare earth supply.

The government's focus is on a fresh wave of reforms, with visible action anticipated in the near future, according to the brokerage.

These reforms, alongside ongoing policy initiatives, are designed to create a more business-friendly environment and sustain long-term economic growth. The brokerage anticipates that significant action should be visible in 2025 itself.

"Privatisation or disinvestment should also get another leg-up with government looking to wrap up the IDBI privatisation by Mar 2026. The recent Jan Vishwas 2.0 Bill decriminalising 288 commercial offences, the rewriting of the direct tax code, IBC amendments etc. are part of recent reform efforts," they said.

Further interest rate cuts are likely, as the government is not overly concerned about the country's growth trajectory.

"While nominal GDP growth is acknowledged to be slow, there is no alarm within the government over the economic situation. Good monsoons are aiding a pick-up in the rural economy, and support via lower interest and tax rates (both income and GST) are expected to broad base the growth in months ahead," said the note.

These factors, coupled with the RBI flexibility to ease monetary policy, according to Jefferies, could support a stronger economic performance.