Import Tariff
Morgan Stanley says 10% rise in US tariffs on India may hit growth by 30 bps
This story was originally published at 14:35 IST on 27 November 2024
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NEW DELHI – Economists at Morgan Stanley have estimated that a 10% increase in tariffs on US imports from India could lower the south Asian country's GDP growth by about 30 basis points. The risk of higher tariffs rose after Donald Trump won the US presidential election earlier this month.
During his campaign, Trump had called India "the biggest charger of tariffs" and had vowed to reciprocate if re-elected as US president. However, on Tuesday, Trump said he would impose tariffs on China, Mexico, and Canada on day one of his presidency, but did not mention India. Trump will take charge of the White House on Jan. 20.
As per the World Trade Organization, India's tariff rates on imports from the US have increased to 9.5% as of 2022, though India has since lifted retaliatory tariffs on imported US apples and other important crops in September 2023, Morgan Stanley said in a report on Tuesday.
The bank is also confident that the Indian economy will recover after activity moderated in Jul-Sept. Morgan Stanley estimates India's GDP to have expanded 6.3% in the quarter ended September from 6.7% in Apr-Jun because of lower government spending, unfavourable weather conditions, and a slowdown in urban consumption. India will release the GDP data for Jul-Sept on Friday at 1600 IST. An Informist poll estimates the economy to have expanded at a six-quarter low pace of 6.5% during the quarter.
"Most of these factors are turning around to support a growth re-acceleration from Oct-Dec," Morgan Stanley said. Economists at the bank expect GDP growth to improve to 6.7% in the quarter ending December and 6.8% in Jan-Mar. Morgan Stanley's growth estimates for all three quarters ending March are well below the Reserve Bank of India's projections. The Indian central bank projects Jul-Sept GDP growth at 7.0%, with Oct-Dec and Jan-Mar growth seen at 7.4?ch.
"Government cash surplus with the RBI has declined sharply from INR 3.6 trillion in September to a deficit of INR 0.4 trillion during the month in November to date, indicating that government spending likely accelerated notably in October and November," Morgan Stanley said. Weather conditions have largely normalised, and urban job creation growth has also started picking up as the improvement in US information technology capital expenditure growth is starting to be reflected in Indian IT exports and job growth in the sector, the bank said.
Moreover, high-frequency food prices in November indicate that food inflation should moderate sequentially, "which will restore some purchasing power for urban consumers", Morgan Stanley said. End
Reported by Shubham Rana
Edited by Tanima Banerjee
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