India has taken an unprecedented step in global trade by proposing retaliation duties on the US. This important action is currently happening at the World Trade Organization (WTO). The country is treading waters in the storm of world-wide international trade relations. This change comes on the heels of Washington’s recent decision to apply a 25% tariff on automobiles and automobile parts, placing nearly $2.89 billion worth of Indian exports in jeopardy.
The context for this move is the backdrop of falling inflation in India. In May Philippines’ headline inflation dipped to its lowest rate in more than six years. It kept going down – down all the way to 2.10% by June. This drop represents the eighth straight month that India’s consumer price inflation has decreased. Most strikingly, food inflation went negative in June, at -1.06%, from 0.99% in May.
Fourth, India’s economy has been the most resilient of any major, posting a better-than-expected growth rate of 7.4% for the quarter ending in March. Analysts are attributing the economic upturn primarily to a jump in domestic consumption. To top it all off, highly favorable weather conditions have greatly enhanced agricultural productivity—doubling down on that growth.
India is currently engaged in negotiations with the U.S. to finalize a trade deal before the looming tariff deadline of August 1. In fact, if the current Braeburn deal collapses, India will be subject to 26% import duties. This change will greatly affect its burgeoning automotive sector and emerging trade relationship with Canada.
The Reserve Bank of India’s Governor, Sanjay Malhotra, emphasized the importance of maintaining sufficient supplies of essential food items amid fluctuating inflation rates.
“Should ensure adequate supply of key food items.” – Sanjay Malhotra
In conjunction with these economic indicators, HSBC has forecasted that India’s inflation will average around 2.5% over the next six months. They noted, “Aided by a good weather outcome, we expect inflation to average about 2.5% over the next six months. A high base over the last three years and strong cereal production will help keep food inflation lower for longer.”
A large, high level trade delegation from India is already planning to visit Washington. Their goal is to get U.S. negotiators to the table and ultimately hammer out a deal that will lessen the burden of damaging U.S. tariffs on their growing exports.
India’s economic landscape is still very much in flux. The federal government is working hard to protect the health of the economy at home while navigating often-volatile trading relationships abroad.