In the rapidly shifting landscape of international trade, the Indian government, led by Prime Minister Narendra Modi, is making significant moves to mitigate the impact of the US tariffs known as the “Trump Tariff.” With Modi set to arrive in America shortly, this strategic initiative aims to maintain favorable trading conditions and provide relief to the Indian stock market. The government’s proposal to reduce import duties on over 30 products could potentially prevent the implementation of tariffs by the Trump administration, thereby bolstering the market sentiment in India.
Strategic Initiatives by India
According to a report by Nomura, India is considering reducing tariffs on more than 30 products in an effort to avoid a trade war with the United States. This includes increasing procurement of American defense and energy products. Recent announcements in India’s central budget also indicate reduced import duties on electronics, textiles, and high-end motorcycles. Moreover, India is enhancing diplomatic relations with the US, as evidenced by the agreement to repatriate over 100 illegal Indian immigrants. This reflects India’s commitment to keeping trade relations smooth while potentially enjoying further tariff reductions on luxury vehicles, solar cells, and chemicals.
Potential Tariff Retaliation from the US
The Nomura report warns that without a reduction in high tariffs on American goods, India risks facing equivalent tariffs on its exports to the US. For instance, if India maintains a 25% tariff on American automobiles, the US may respond with similar tariffs on Indian vehicles. President Donald Trump has previously criticized India’s trade policies and has emphasized the need for “reciprocal tariffs” to ensure fair trade treatment for American exports.
India’s Trade Surplus with the US
Data shows that India’s tariff rates are notably higher than those of other countries, making it particularly vulnerable to American retaliatory actions. The US is India’s largest export destination, accounting for approximately 18% of India’s total exports. In the fiscal year 2024, this trade surplus is projected to reach nearly $38 billion. Major exports to the US include industrial machinery, gems and jewelry, pharmaceuticals, fuel, iron and steel, textiles, vehicles, and chemicals.
Trump’s Assessment of India’s Tariff Policies
President Trump has previously labeled India as the “Tariff King,” calling for greater procurement of US-made security equipment. In discussions with Prime Minister Modi, Trump has stressed the importance of creating a “fair bilateral trading relationship.” The Indian government is exploring options for an agreement to avoid high tariffs, focusing on strengthening its economic ties with Washington and attracting more US supply chains to India.
Impact on the Stock Market
While countries like China and those in the European Union are preparing to respond to US tariff policies, India is opting for a contrasting approach by planning to lower its own tariffs. This strategy is expected to stabilize the Indian rupee and rejuvenate the stock market. If tensions between the two nations lessen, and US investments in India increase, the economic benefits could outweigh any losses from reduced tariffs. Consequently, this shift is likely to foster a positive sentiment among investors in the Indian stock market.
Recent Stock Market Declines
In recent days, the Indian stock market has faced significant turmoil, closing lower for five consecutive days. The Bombay Stock Exchange’s key index, Sensex, dropped by 1,018.20 points, ending at 76,293.60 points. Throughout the trading session, it reached a low of 76,030.59 points. Over these five days, Sensex has seen a decline of over 2,000 points, while the National Stock Exchange’s Nifty index also fell sharply, closing down approximately 310 points at 23,071.80 points.
Investor Losses
Investor losses have been substantial, with the market capitalization on the Bombay Stock Exchange (BSE) plummeting from ₹41,78,257.39 crore to ₹40,85,292.63 crore, resulting in a staggering loss of approximately ₹9,29,651.16 crore in just one day. Cumulatively, the losses across the five-day period escalated to around ₹17 lakh crore, underscoring the volatility and current challenges facing investors.