Opinion To avoid reciprocal tariffs, lock down trade deal with the US

The economic consequences stemming from the uncertainty unleashed by US President Donald Trump’s tariff policies are becoming visible. Countries across the world are being affected. On Tuesday, the International Monetary Fund lowered its forecast for global growth and trade this year. Alongside, the Fund cut India’s growth estimate by 30 basis points to 6.2 per cent. A day later, the World Bank also lowered the country’s growth projection, pegging growth at 6.3 per cent this year, down from its earlier assessment of 6.7 per cent. Some expect an even greater hit to growth. The RBI, however, is less pessimistic. It has scaled down its estimate of economic growth by just 20 basis points, pegging growth at 6.5 per cent.

The impact to the economy is likely to be felt in many ways. Exports of goods will be hit. Indian IT firms that derive a substantial share of their revenues from the US are also likely to witness a challenging environment as American companies scale back, possibly delaying existing projects and fresh deals. Some export hubs like Tiruppur, though, may benefit. The uncertainty is also likely to constrain fresh investments in the economy, especially as countries seek to redirect their exports. Alongside, the volatility in the financial markets may also make overseas fundraising difficult, even as commodity prices may remain subdued. Brent crude oil is currently hovering around $67 per barrel. Lower oil prices will be a positive for government finances.

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In its last meeting, the RBI’s monetary policy committee had cut the repo rate by 25 basis points in order to stimulate the economy. But, at this juncture, there is a case for deeper rate cuts. In fact, MPC member Nagesh Kumar has noted that “one could be more ambitious and target a 50 basis point cut, which in my view may be more effective than two cuts of 25 basis points each”. However, as per the World Bank, “the benefits to private investment from monetary easing and regulatory streamlining are expected to be offset by global economic weakness and policy uncertainty”. Greater clarity over the latter will emerge in the weeks and months ahead as countries try to stitch trade deals with the US. Scott Bessent, the US Treasury Secretary, has reportedly indicated the possibility of India being the first country to finalise a trade agreement. Successful closure of the deal would help the country avoid reciprocal tariffs and reduce uncertainty, providing clarity to both global and domestic firms.