Union Budget 2019: The ongoing trade and tariff wars in the world have added another big dimension to India’s growth story and the forthcoming Budget 2019.
Union Budget 2019: The ongoing trade and tariff wars in the world have added another big dimension to India’s growth story and the forthcoming Budget 2019. The US-China trade dispute has extended to other countries with even India and USA levying additional tariffs on imports from each other. Many see a global impact on trade. While India too will face headwinds, some analysts see an economic opportunity for India arising out of the USA-China trade fight. In the short run, these trade and tariff wars will also weigh on FM Nirmala Sitharaman’s mind as she reads her Budget 2019 speech. A Financial Express Online poll of economists and influencers saw a majority expressing the view that these trade developments could impact India’s GDP growth.
“India is aligned to the global economy. Any major action or reaction overseas has an impact on the Indian economy either immediately or over a period”, said Vikas Vasal, National Leader – Tax, Grant Thornton in India. What adds to the worry is the already dismal export performance over the last few years. “These wars hurt the export story, as a percent of GDP, exports have only come down over the last five years. That’s a worry. If something goes wrong on US-China front, capital flows get impacted, which hurts more”, felt Sachchidanand Shukla, Chief Economist at Mahindra Group. Sandeep Raina, Associate Director, Edelweiss Professional Investor Research too voiced concern over slow export growth but expressed relief that US-China seem to have stopped for now.
Some others felt that while India may be impacted, there was not much to worry about just yet. “The global trade wars will have a mixed impact on India. On the negative side there could be moderation in overall exports due to slowdown caused by trade wars. On the positive side, there could be gains from shift in supply chains from China to India in some sectors. However, if trade wars continue for an elongated timeframe, it would hurt both the economy and sentiments”, said Sanjeev Hota, Head of Research, Sharekhan. CARE Ratings’ Madan Sabnavis saw a very limited maximum impact of 0.1–0.2 percent of GDP. One policy influencer at a large domestic lender too felt the impact would be minimal as India is largely a domestic economy. “What is more important is the price of oil”, he told Financial Express Online.
So, what measures can the government take to address the problem in the forthcoming Budget 2019 and otherwise? “India has to look at which companies and sectors to target that are currently manufacturing in China and proactively reach out to those companies to move to India. There can be a special zone created with the necessary flexibilities, especially for companies immediately shifting out of China”, suggested Ranen Banerjee, Partner and Leader Public Finance and Economist, PwC. In what could be a cue for Budget 2019, Vivek Kumar, Senior Economist at Yes Bank, suggested tax incentives to companies exploring diversification of production base from China.
Conducive investment environment and ease of doing business is the suggestion of Radhika Rao, Sr. VP, Economist, DBS Bank. “In the short-term, much diversion in trade flows might not occur, but, over the medium term a shift in investment interests might benefit India”’ she said. Arihant’s Anita Gandhi feels India can prepare itself by ensuring job creation and skill development.
The suggestions related not just to the forthcoming Budget 2019, but also on trade and commerce policy. “The government can provide support to exporting sectors, especially for trade facilitation at ports, standardisation and export promotion. The government could set up export promotion centres in leading markets on the lines of UKTI(UK), MATRADE (Malaysia) etc.”, suggested industry body CII. Rupa Rege-Nitsure, Group Chief Economist, L&T Finance Holdings suggested that India needs to get into more bilateral trade agreements. Given all this uncertainty, there is some assurance as well. “RBI has already begun to work. Our forex reserves are over $400 billion. RBI has policy tools to control the damage”, said Sachchidanand Shukla of Mahindra Group.