The US tariffs are unlikely to have an impact on India's growth as the country is not a very trade-oriented economy to begin with, according to the sovereign and international public finance ratings team at global ratings agency S&P.
Given the exposure of Indian exports to the US as a percentage of the GDP, and the exemptions to products such as pharmaceuticals and consumer electronics, effective exposure is just about 1% of the GDP, the ratings team said, in a webinar on Asia-Pacific sovereign ratings on Wednesday. As such, the positive outlook on India remains, they added.
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Credit impact of tariff-related developments has not been as negative as previously feared for the region, according to the ratings agency. Domestic developments that some sovereigns in the Asia-Pacific region have seen have kept trends either stable or positive, the agency added.
A rush by importers to place orders, before the tariffs kicked in, led US imports to rise sharply from these economies in the first half of this year, the ratings agency explained. The obvious exception was China, and even once tariff rates came down, Chinese exports were seen to be lower than seen previously. In this period, it was seen that other Asian economies were trying to replace Chinese exports to the US. One such instance is the rise seen in smartphone imports to the US from India.
Unless other sources of demand emerge, investments are likely to remain muted in most parts of the region, the team said. The environment facing these economies has become more difficult than before, but this does mean that positive sovereign rating trends of these economies will cease, although it might now take longer for positive fundamental changes to translate into higher ratings, they added.
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