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Informist, Tuesday, Nov. 12, 2024

NEW DELHI – The Indian government will focus on national interest while balancing bilateral relations and trade arrangements at a time when the US presidential election could have implications on its strategic ties, Finance Minister Nirmala Sitharaman said at Republic World's India Economic Summit Tuesday. 

Her statements came in the context of two things – US president-elect Donald Trump's claim that he would stop the Russia-Ukraine conflict, and his protectionist tariff policies affecting the US' trade with India. 

In the aftermath of the Russia-Ukraine war, when energy prices had shot up, India struck a deal for discounted crude oil from Russia, even when the Western nations, including the US, imposed heavy sanctions against Moscow. On being asked if this set-up could be distorted post the election of Trump, who had claimed in his pre-election rallies that he would stop the war in 24 hours, Sitharaman said India would always put its national interest on priority and navigate a deal that works best for its domestic markets.

The other issue pertains to Trump's widely known protectionist tariffs, which could be detrimental to Indian exporters. Earlier, Trump had termed India a "large tariff abuser" and in October 2020, he labelled India as "tariff king". These remarks suggest that trade with the US, which has been a popular destination for Indian exporters, could see some barriers.

Sitharaman said the government's priority would be to protect domestic players but also navigate the requirements of the global market. There is always a balance and the government would strive for it, she said. New Delhi's total trade with Washington in 2023-24 (Apr-Mar) was to the tune of $119.71 billion, down 7.5% on year. 

On Friday, India's Chief Economic Adviser V. Anantha Nageswaran said Trump's re-election as US president could open new trade opportunities for India. A new leader, he said, could perhaps delegate global trade discourse and find a resolution to the Red Sea crisis that has troubled Indian exporters for a year now. 

Since last November, Iran-backed Houthi rebels have been targeting container ships passing through the Red Sea route--which accounts for 30% of the global container traffic. This has forced shipping vessels to take a longer route, driving up freight charges. "The opening of the Red Sea route will help lower tariffs, freight costs and increase trade volumes," Nageswaran said. 

CENTRE-STATE DEBATE

At the event, Sitharaman also spoke about allegations by a few states about the Centre denying them funds. She called these claims "baseless". 

Funds to states are allocated based on the recommendations of the Finance Commission, and the Centre had no authority to grant more or deny funds, she reiterated. The 15th Finance Commission recommended vertical devolution of taxes to states, with the Centre mandated to share 41% of the amount with states from the divisible pool. But many states such as Karnataka, Kerala, and Tamil Nadu complained that the Centre had not released their deserved funds and, in fact, cut down their share in taxes.

The Budget has projected a transfer of INR 23.49 trillion to all states and Union territories in the current fiscal year. This includes INR 12.47 trillion as devolution of taxes to states. 

The Congress government in Karnataka, led by Chief Minister Siddaramaiah, had launched the "Chalo Delhi" protest at Jantar Mantar here on Feb. 7 against the Bharatiya Janata Party-led government at the Centre, opposing what he claimed were disparity in devolution of funds, non-release of compensation for drought relief work, and denial of permission to implement irrigation and drinking water-related projects in the state.

Separately, Kerala moved the Supreme Court, challenging the cap on states' borrowing by the Centre. Sitharaman said that even the apex court ruling declined to give the Centre any interim direction to relax the state's borrowing limit. In the Budget for FY24, the Centre had reduced the borrowing limit of states to 3.5% of gross state domestic product from 4%, with 0.5% tied to power sector reforms.

This was despite Kerala making representation to increase its borrowing limit to 4.5% of GSDP. The state had then approached the Supreme Court, accusing the Centre of interfering in the exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on net borrowing. 

Sitharaman said the Centre has released all the funds that have been allocated and is fully committed to releasing those allocated, provided states submit their accounting certificate. "Once states submit their report, all allocations are released," she said.  End

Reported by Priyasmita Dutta

Edited by Avishek Dutta

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