India weathers tariff storm for now, but consumption headwinds await, Pg15

Key Highlights:

• In 2025, India faced higher tariffs into the US than China, and a trade deal remained elusive.
• Despite initial concerns, India's exports to the US saw an uptick in November due to tariff-exempt goods and market diversification.
• India's GDP is forecast to grow by 7.3% in fiscal year 2026, maintaining its position as the world’s fastest-growing major economy.
• The government implemented reforms, including GST rate tweaks and amendments in labour and nuclear sectors, to attract investment.
• FDI increased in late 2025, supported by investments from tech giants like Google, Amazon, and Microsoft in cloud and AI infrastructure.

Detailed Insights:

• The Indian economy demonstrated resilience in 2025, navigating challenges such as US tariffs and immigration clampdowns through policy adjustments and export strategies.
• Legislative actions in the latter half of 2025 included GST rationalization, labor law reforms, and nuclear sector amendments aimed at fostering private and foreign investment.
• A managed depreciation of the rupee to over 90 against the dollar served as a buffer against the 50% American tariff barrier.
• Domestic economic activity remained stable in late 2025, supported by GST rationalization and festival spending, with rural demand being more robust than urban demand.
• Healthy agricultural prospects, low inflation, and strong corporate balance sheets are expected to support economic activity going into 2026.
• Challenges remain on the external front, including uncertainty regarding US trade policies and potential diversion of Chinese exports to emerging markets like India.
• The current account deficit (CAD) was at 1.3% in the second quarter of 2025-26, with concerns about financing it amid potential foreign investment outflows.
• Revival of private investments is crucial, requiring increased demand visibility and higher capacity utilization for companies to plan expansions.

Key Concepts Involved:

• Tariff: A tax or duty imposed on goods when they are moved across a customs boundary.
• Foreign Direct Investment (FDI): An investment made by a firm or individual in one country into business interests located in another country.
• Current Account Deficit (CAD): The shortfall when a country's total imports of goods, services and transfers is greater than its total exports.
• GST Rationalisation: The process of simplifying the Goods and Services Tax structure by reducing the number of tax rates and addressing complexities.