Swaminathan Aiyar , Consulting Editor, ET Now , says Trump is a believer that tariffs are good for America. If that is the case, then India is going to be hit. Trump called India a tariff king and pointed out that it had very high tariffs on motorcycles. He is going to go for tariffs and he is going to hit India also. Maybe he is doing this as a bargaining position and could soften his position later on. Aiyar is confident Trump is going to start international trade wars. Further, there is likely to be a series of additional tariff and non-tariff barriers coming up around the world and that will be bad for India. In uncertain conditions, people tend to run to the dollar and that means people will pull money out of emerging markets like India.
2025 is full of macro environmental challenges beginning with Trump taking over as the US President, the chatter around tariff and other major policy changes which are already in the works. What is your view on the overall Trump trade and its impact on EMs like India?
Swaminathan Aiyar: The real problem is that Mr Trump seems to change his mind every few minutes. He says different things at different times. It is very difficult for anybody to know what is really on his mind or whether there is any consistency at all in the various proposals he makes. As of now, it seems that he is very serious about using tariffs against other people. There are some optimists who think that this is a bargaining position to get a few trade deals. I do not think so. He is a believer that tariffs are good for America. If that is the case, then we are going to be hit.
Let us be clear. Mr Trump called India a tariff king and pointed out that we had these very high tariffs on cycles. I think he meant motorcycles, which to him is like a running sore. I mean, we tried to reduce it from 70% to 45%, and he was outraged that it can be so high. So, he is going to go for tariffs and he is going to hit India also. I could be wrong. Maybe he does this as bargaining positions and maybe his position softens later on. But I do believe that he is going to start international trade wars.
And if that happens, we will be affected not just by whatever Mr Trump does, but the retaliations of the other people like the Europeans, Japanese, Koreans. I mean, there is likely to be a series of additional tariff and non-tariff barriers coming up that will be bad for India. Moreover, if you create such uncertain conditions, in such uncertain conditions, people tend to run to the dollar and that means people will pull money out of emerging markets like India.
In the new year, the other big event to watch out for is the budget. What do you think are going to be the key focus areas of the government this time around?
Swaminathan Aiyar: The coming Budget, I suspect, will be one of continuity. The BJP theme for several budgets and even in the general election was one of continuity. Mr Modi did not promise lots of new things in the re-election. He was boasting about what they had done and how they would continue on that path. So, what would we expect? Well, Finance Minister Nirmala Sitharaman had said that she will try to get the fiscal deficit down to 4.5% in FY25-26. I imagine that is what will be there.
She has always been in favour of increasing capex and she will once again go for a high capex, although things will not be very easy if she is reducing the fiscal deficit by that much. But the revenues are pretty buoyant and she will be able to do it. There is a demand for extending PLI to more sectors. I suspect she may give in to that, although I think it is a bad thing. There are already too many sectors affected by it. Beyond that, I expect continuity in most things. She may put some additional duties where it will help some of the ancillary producers in part of the Make in India thing or of the Indian companies and the value chains for mobile phones and so on. But I would expect basically a budget of continuity. Yesterday’s policies, the day before yesterday’s policies, are good policies and are delivering results. We will continue on this path, and that is what we will see.
The other big event which is unfolding is the rapid depreciation of rupee, especially the ferocity that we have seen of late. In comparison with other currencies, we have done better because it is all coming because of the dollar strength. What are the expectations now? Do you see any intervention being made by the RBI to stabilise rupee?
Swaminathan Aiyar: In my opinion, the RBI is not doing that much. Beyond a point, the RBI will not be able to control the market because now there is a big offshore market in Singapore and we would not want to try intervening everywhere. But because we have such a strong services export sector, the exchange rate, instead of being set by the merchandise goods exports, is now beginning to be set by the services exports and because our services exports are doing very well, that is why the rupee is strong compared with that of other Asian countries.
That is why we have depreciated less against the dollar than all these other currencies, that is something which is likely to continue. What is happening is that the rupee itself is tending to be strong because of our strong export performance rather than the RBI intervention.
Amidst all these events, the RBI also appointed Sanjay Malhotra as the new governor. In order to balance between inflation and growth, the RBI kept the interest rates unchanged since February of last year or rather last to last year. How do you think the new governor will look at this balance?
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