India’s consumer inflation has fallen even further, recently registering 3.15%, the lowest level since June 2017. Those most recent no. Inflation figures, released Tuesday, showed inflation falling to 1.55% in July, the ninth-straight month of declining inflation. Today, India finds itself walking a tightrope in the internationally politically charged trade relations—especially with the United States. Recent U.S. tariffs—which have been found to be illegal by the WTO—could seriously damage the Indian economy.
In these increasingly fraught times between India and the US, India is now subject to a shocking 50% tariff as retaliation on specific items since the end of August. The trade skirmish has escalated sharply. US President Donald Trump accused India of financing Russia’s war in Ukraine. India has criticized the US and the EU for their own trade ties with Russia. The country seeks to expose a double standard whenever and wherever they’ve been called out, criticized, or condemned.
India’s economic metrics show remarkable resilience despite these hurdles. The central bank’s forecast for inflation stands at 3.1% for the fiscal year, while the country’s economic growth for the quarter ending in March surprised many by expanding 7.4% year-on-year—well above the 6.7% predicted by economists in a recent Reuters poll.
Economists had predicted July’s inflation rate to be at 1.76%. The real number ended up coming in below the forecast, leaving a positive surprise and more room for a dovish monetary policy. Food inflation fell tremendously into negative territory at -1.76%. This drop from -1.06% in June contributed to a decrease in the overall price level faced by consumers.
Joe Maher, assistant economist at Capital Economics, commented on the meaning behind these numbers.
“Combined with the potential hit to GDP from the punitive US tariffs on India, July’s very soft inflation print has certainly increased the chances of further policy easing this year. That said, the 50% tariff rate may not prove permanent.”
Maher underscored an impressive unanimity on the MPC to quell any immediate fears that the upcoming inflation would persist. He added that in their communications lately, there have been some major signals of trouble for any more easing of policy.
Fast forward to today, and there’s a new tsunami of tariffs on the horizon. Beginning August 28, India will begin charging an additional 25% tariff on oil purchased from Russia. Yet this move will only deepen the self-inflicted pressures it has already created for its economy. In fact, the White House has already put 25% “reciprocal” duties into effect—those defied the WTO and were never a viable option.