New Delhi: S&P Global Ratings Tuesday said high US tariffs are unlikely to impact India’s long-term growth prospects as the government is focused on economic reforms and trying to improve the standard of living of people.
S&P, after a gap of 18 years, upgraded India’s sovereign credit rating to ‘BBB’ with a stable outlook. It cited robust economic growth, political commitment for fiscal consolidation and ‘conducive’ monetary policy to check inflation as the reasons for the rating upgrade.
“Going forward, we expect this growth dynamics will continue to play out over 3 years with growth averaging about 6.8 per cent. If infrastructure and connectivity improve in India, it will remove bottlenecks that are hindering long-term economic growth and bring India’s potential growth path even higher,” S&P Global Ratings Director YeeFarn Phua said.
India remains among the strongest and best-performing economies in the world, and over the past 3-4 years, India has been an outperformer in growth compared to regional peers, Phua said at a webinar on India’s rating upgrade.
On the impact of high US tariffs, S&P Asia Pacific Economist Vishrut Rana said India’s economy is relatively less trade-oriented, with external demand contributing only 15 per cent of the overall economy and 85 per cent driven by domestic factors.
“So it is a very heavily domestically oriented economy. That is one element of shelter,” Rana said, adding, another mitigating factor of high tariffs is that the high 50 per cent tax is not applicable on all goods exported from India.
“It is a complicated environment. There are several mitigating factors which are likely to cushion the overall impact on the economy. Still, we could see some short-term confidence effects on the economy. Medium term, the structural factors — favourable growth path, infrastructure and continued favourable business environment — will determine the growth path,” Rana said.
The US has imposed a 25 per cent tariff on Indian goods coming to the country, effective August 7. An additional 25 per cent duty is scheduled to be imposed from August 27, taking the total tariff to 50 per cent.
Further, Phua said that India remains focused on economic reforms, fiscal consolidation and infrastructure investment.
“These external developments (like high tariffs) can sometimes create some noise but by and large, this government is staying on course and trying to improve the standard of living for its people,” Phua said.
Asked about the impact of tariffs on growth, he said S&P takes a long-term view while deciding on ratings, and there are sectoral exemptions to pharma and consumer electronics.
“Exposure of India to the US in terms of exports is just 1 pc of GDP. So, even though tariffs remain high, we don’t think it will have an overall impact on India’s long-term growth prospects. Short term, it might have some marginal hit to growth, over a longer term, we believe India’s growth story remains sound,” Phua added.
PTI
