Trump's reciprocal rates: India sticks for economic ripples

Copyright © HT Digital Streams Limit all rights reserved. Donald Trump, president of the economy, speaks during an opportunity to announce new rates in the Rose Garden in the White House, Wednesday, April 2, 2025 in Washington. (Photo: AP) Summary The Trump administration imposed a reciprocal rate of 26% on Indian goods, claiming that New Delhi charges an average of 52% on US imports. The move has the trade, currency and capital flow of the move – which has posted both risks and opportunities for India. New -Delhi: Washington’s latest trade alvo has hampered global markets. The reciprocal rates announced by President Donald Trump on April 2 include a 26% levy on Indian goods, with different rates imposed on other countries. Apart from the trade, the move can disrupt the currency markets, capital flow and corporate strategies worldwide. While India is facing fresh challenges, the shift can also create unexpected opportunities in a developing global trading landscape. Read it | Trump’s tariff strike: India hit 26% in duty as the trade war raises rates, a greater clarity on sectoral consequences and cash flow of corporate. However, Larsen and Toubro group chief economist Sachidanand Shukla must now shift the focus of competitiveness to innovation. “The INR (Indian rupee) can remain under pressure with a global risk, but the greater risk of monitoring is any aggressive yuan valuation-it will be the joker in the pack,” Shukla said. A protectionist Push Trump’s move attempts to counteract what he calls unfair trading practices. The 26% tariff rate imposed on Indian goods stems from the assertion of the US administration that India charges an average rate of 52% on US imports. Trump referred to this as a ‘discount’ reciprocal rate – which is half of what the US believes in its products. Read it | Are Trump’s tariff rates made up? Here is how it is calculated that the move is an increasing protectionist position, with possible ripple effects over global trade and foreign exchange markets. For India, the challenge is twofold: managing immediate disruptions while positioning itself for long -term profits. With sectoral consequences that are now clearer, businesses must pass on cost-driven competition to growth in innovation. A Bernstein report, dated April 3, indicates that India is unlikely to increase the situation in a full-fledged trade war, and that they would rather choose negotiations. While Indian markets can respond negatively in the short term, Bernstein remains optimistic about macroeconomic recovery in the second half of the year. A potential trade agreement in the US India could be a long-term positive, although the risks are still due to a slowdown in the US economy and possible recessionary pressure. “Items such as clothing and auto parts will see major tariff increases, but India seems to protect from a competitive point of view, as rates on various South Asian economies competing with India are even higher,” the report states. “If India can earn some from the loss of China, which, according to some measures, is now staring at 54% tariff if the existing 20% ​​are added on top of the additional 34%. The major loss will eventually come in the form of US discretionary spending, which can have the medium -term consequences for the economy if the tariff war rises,” it added. Currency Market Fall The US dollar is likely to strengthen as investors seek safe haven assets in response to higher trading barriers. The Federal Reserve and broader macro -economic indicators monetary policy will further affect the trajectory. Read it | In maps: How is India to Trump’s reciprocal rates? A stronger dollar could partially compensate the tariff impact on India, but would also potentially promote its import account – especially for crude oil and other necessities -. Higher rates will increase import costs, with US imports accounting for about 10% of GDP. Madan Sabnavis, chief economist at the Bank of Baroda, said that a 7% increase could lead to a direct 0.7% inflationary impact, which keeps the Federal Reserve careful about interest rates. Yet India may not be isolated from currency fluctuations. As the dollar strengthens, all major currencies – including the rupee – are likely to decline, making the management of rupee an important challenge, Sabnavis said. In addition to trading, capital flow can also be affected. “If there are subsidies for production, there may be a capital flight from other countries, including India to the US, to take advantage of the opportunity. So outward investment should be monitored. But this cannot happen immediately as corporations will weigh options, including the opportunity in India,” he said. A weaker rupee will have a greater impact on the wholesale inflation than inflation in the consumer, possibly increasing the wholesale price index (WPI) by 0.3-0.5% on the medium term, Sabnavis noted. At the same time, a depreciation rupee can increase the inflow of overpayment. Indian expatriates – especially those in the US – find it more profitable to send money home. According to the Reserve Bank of India (RBI), US overpayments form a significant part of India’s foreign exchange reserves. Any fluctuations in currencies can affect this inflow. In FY24, the US became the largest source of overpayments for India, which contributed 28% of the total and exceeded the woloration. The total inflow of India reached a record of $ 118.7 billion, more than double $ 55.6 billion in FY11, the RBI data showed. A weaker rupee offers a double -edged sword. Although it increases India’s export competitiveness, it also increases the cost of imports, which increases inflationary pressure on the economy. The RBI’s role as reciprocal rates reform the trade and currency dynamics, the Reserve Bank of India will play a key role in stabilizing the economy. The RBI is expected to provide financial support with another rate reduction in its policy meeting in April 2025, which provides some relief for businesses that are hit by rates. “Although we believe that (US) trading partners, including India, will continue to negotiate for a better agreement in the coming months by diplomatic channels, we expect RBI to deliver another 25 BPS (base points) in April-25, as increased rates would be a hue of domestic growth,” JM Financial said in its Report on 2 April. However, while India navigates these conditions, policymakers should find a balance between trade protection, exchange rate stability and inflation control to maintain economic growth. “The approach of the Indian government has been working together so far, which is clear in the tax reduction in the budget announcements in February 2025. In addition, India avoided any retaliation against the US, unlike in the case of China and the European Union,” the JM Financial Report added. In an interview with Mint in November, Arind Virmani, a member of the Niti Aayog, suggested that President Trump’s proposed import tariffs could eventually benefit India by speeding up the provision of providing China. A stronger dollar, he argued, could soften the economic impact of rates. ‘If a country imposes a 10% tariff uniformly on each item it imports, increasing the tariff protection by 10% on each item uniformly, the economic theory says that the exchange rate will only adjust to compensate it, more or less. So there is a zero on the outsiders, “Virmani said that the outcome of the theory will be, even a 90%major, the impact on the impact on the impact on the impact will be concern. Despite the risk of market stagnation in the US, India remains more competitive than China and Vietnam due to lower tariff rates, says Bipin Sapra, partner, tax and trade policy, EY India. Read also | Mint Snapview: Many countries will repay at Trump’s rates. India should not. “Some items were left out of the imposition, with a prominent pharmaceuticals, copper, certain chemicals and semiconductors. No new tax has been imposed on auto parts, steel and aluminum products on which the tariff has already been imposed,” Sapra added. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Trade #Trade War #Donald Trump #United State Mint Special