New Delhi [India], April 3 : India will be able to safely navigate through the tariff challenges, says a report by Bernstein, an international equity research company.
The report stated that India is more likely to engage with the US through negotiations rather than escalating a trade war. While there could be an immediate negative sentiment in the markets, the report expects a macroeconomic recovery in the second half of the year.
It said "We believe India will be able to safely navigate through the tariff challenges and is more likely to engage with US through negotiations rather than heating up the trade war".
India had already taken proactive steps before the tariff announcement. In March, India signed the Terms of Reference for a Bilateral Trade Agreement after a priority intervention from the Prime Minister's Office. This move has now set the stage for final negotiations between the two countries.
Additionally, India had earlier reduced import duties on certain American products, including high-end motorcycles, agricultural products, and Bourbon whiskey, as part of its budget announcements.
The report sees a potential trade agreement with the US as a positive long-term development. However, some sectors may face risks due to the weakening of the US economy, dipping into a possible recession.
In response to the recession, the report has upgraded the healthcare sector to equal weight, as it is expected to have a limited impact, while the IT sector has been downgraded to equal weight due to the rising risk of a US recession.
The US administration has also included non-monetary barriers while calculating tariffs. If this includes the Value Added Tax (VAT), which the White House recently mentioned, it could be seen as an unusual measure, given that domestic sales tax applies to both imports and local products.
However, compared to other nations facing tariffs from the US, India ranks on the lower end, with its tariffs being lower than those of Vietnam (46 per cent) and China (34 per cent). Other Southeast Asian countries, which compete with India in trade, also face higher tariffs.
Despite the short-term negative sentiment, the report believes that India is relatively shielded from long-term impacts. A major reason for this is the nature of India's export basket. IT services, which make up a significant portion of exports, are outside the scope of goods-specific tariffs.
Meanwhile, the pharmaceutical sector, another key export area, has limited alternatives, is not discretionary, and falls under exempted categories. While IT could be affected by a long-term slowdown in the US economy and the rise of artificial intelligence, the impact is not directly linked to tariffs.
Overall, the report suggests that India's strategic engagement and proactive policy measures will help it navigate through the current tariff challenges, ensuring stability in the long run.
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