- 4Q24 real GDP growth is expected to return above 6% yoy from 5.4% in 3Q.
- We are mindful of revisions to past data.
- Tariff-related turbulence lies ahead as the US upped the ante with reciprocal tariffs.
- We assess the current tariff regime and discuss sectoral implications.
- The near-term impact of tariffs on growth might be small, with asymmetric sectoral implications.
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4Q24 (3QFY) growth numbers to tick up
4Q24 (3QFY25) real GDP growth is expected to improve to 6.3% yoy from 5.4% in 2QFY; latter was the slowest in seven quarters. A catch-up in government capex spending, passage of idiosyncratic factors including unfavourable weather, better kharif crop output, festive demand, and better production numbers are few of the factors which should lift 3QFY25 output. This is counterweighed by an absence of pick-up in corporate profitability and service sector activity, signaled by slowing credit growth and moderation in GST collections.
(see PDF for details)
Tariff turbulence ahead
- US’ premise
News flow on potential trade and tariff action from the US continues to trickle in. While the jury is out on whether these will be imposed or are negotiating tactics, there is heightened uncertainty amongst key stakeholders. In mid-February, the US government proposed to impose a ‘Fair and Reciprocal Plan’, which not only covers import tariffs but also non-trade barriers, including value-added taxes and exchange rates, amongst others that might put US firms at a disadvantage. The official release highlights the motivation for the US to correct longstanding trade imbalances. Examples were cited including Brazil, which has an 18% tariff on ethanol imports from the US, whilst the US tariff on ethanol is low at 2.5%. India also finds a mention, with the average applied MFN tariff at 39% vs. US’ 5% highlighted as a mismatch, besides India’s 100% tariff on US motorcycles (vs. US’ 2.4% on Indian motorcycles).
(see PDF for details)
- Tariffs under the scanner
India’s tariff rates are higher than the US and Asian peers, which makes the economy susceptible to retaliatory as well as reciprocal tariff action. The trade-weighted average tariff rate in 2023 stood at 12% vs 2.2% in the US. India’s rate on agricultural products was high at 65% (2022) on average, but imports under this category amounted to 5% of total imports. The rate on non-agricultural product lines was 9%, amounting to the bulk of the imports – see chart.
(see PDF for details)
Way forward
- Bilateral trade agreement
- Higher energy imports
- Sectoral implications – Pharma, Electric Vehicles, Electronics/ semiconductors:
(see PDF for details)
Conclusion
Impact on India’s growth from slower trade activity is likely to be small as net exports accounted for less than 3% of GDP on average in recent years. Nonetheless, at the sectoral level, the impact will be asymmetric as we highlighted in the relevant section.
(see PDF for details)
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