Overall sentiment could impact India economy

India will not be spared if the US-initiated tariff war escalates into a full-scale global trade war, as it would have a collateral damage for the Indian economy as well, cautioned trade body ASSOCHAM.

It will lead to exports taking a taking a hit, current account deficit facing pressure and the Gross Domestic Product (GDP) taking a setback, it said.

“Instead of de-escalating, the trade tensions between the US and China with the fall out impact on other trading majors, have only escalated; spooking the global financial markets,” ASSOCHAM observed.

“The tensions in the market look quite justified, as the Trump move to levy tariff on trading partners could lead to a further retaliation against the US.

“Though India may not get much of a direct impact, the collateral damage could be in the form of adverse impact on the overall sentiment,” the chamber said

The ASSOCHAM Secretary General D S Rawat said, even if India chooses to take a responsive action on its imports, the impact on “our exports could be more even as the volatility in the foreign exchange rates would also rise”.

“We must have a backup plan which should include opening bilateral trade with key trading partners, taking precaution that we remain WTO compliant,” said Rawat.

In case the market confidence is further eroded, there would be outflow of portfolio investment taking a toll on the dollar rates.

Besides, as the US dollar is used as a safe haven in the midst of global uncertainties, its increased demand would put pressure on the Indian currency along with those of the other currencies of the emerging markets, ASSOCHAM pointed out.

“It is no more a scenario where it was considered only a threat. The US administration has started signing the orders on tariff revision and other protective measures.

“In the process, the influence of multilateral organisations like the World Trade Organisation (WTO) is also on the wane. When countries get into this kind of a slugfest, the multilateral regime takes a big knock,” the chamber said.

However, the chamber complimented the Indian government for taking an initiative to host a meeting this month of over 50 ministers under the aegis of the WTO for espousing the cause of open trade. fii-news.com