India's options amid uncertainty

Equity support by the government, reskilling, and housing for workers — some of the steps to assist investment in new sectors

- R KAVITA RAO & SUNIL ASHRA

The global economic environment has acquired a new dimension of uncertainty from the emerging tariff scenario. Tariffs are subject to ongoing bilateral negotiations, contributing to the perceived uncertainty. It is useful to explore what the impact on India could be: On the economy as well as the fisc. Further, following up on a famous quotation from Winston Churchill — "Never let a good crisis go to waste" — can India find opportunities in this crisis?

The imposition of additional tariffs on Indian exports by the United States (US), even if at a modest rate, along with potential moderation in global demand, would imply a negative impact on India's exports. The decline in crude oil prices can moderate this negative effect. On the other hand, reduction in import tariffs by India could imply higher import, but not necessarily higher Customs duty collection — in other words, deterioration in current account deficits and a corresponding lowering of growth. Forecasts by various agencies, however, suggest India's growth would remain above 6 per cent! (See table.)

Turning to the fisc, the Budget numbers are based on a nominal growth rate of 10.1 per cent in gross domestic product (GDP). With a real growth rate of over 6 per cent and an inflation rate around 4 per cent, the Budget forecasts on receipts are likely to be realised. On expenditure, with expectations of a good monsoon and a modest shock to the real economy from external uncertainties, there is no burgeoning need to augment social-security measures in the near future. The government can focus on economic policy.