December , 2018
India affected by trade war
12:21 pm

Kuntala Sarkar

Trade war and its possible consequences did not start with Trump's imposition of higher tariffs on Chinese imports. Rather, its inception can be linked to the inherent nature of global capitalism. As powerful national economies expand beyond their boundaries and vie for shares in the global market, they are bound to come to a confrontation point. The ensuing trade war between the United States of America (USA) and China has its origin in the present nature of the global economy. 

The ongoing trade hostilities between the USA and China have serious implications for the Indian economy. The US is India’s single largest trading partner, which accounts to more than $100 billion yearly. The total trade makes up about 40% of India’s GDP. The ongoing trade war may risk the Indian economy as US President Donald Trump, in March, 2018, signed an order of imposing 25% tariff on steel imports and a 10% tariff on aluminium imports. The Indian government repeatedly requested exemption. India was forced to a take pro-active stance when the US showed no favourable movement. New Delhi’s proposed tariff hikes are on 29 items including almonds, apples, walnuts and certain stainless steel products worth $241 million is a brave step that was implemented on August, 4, 2018. Under India’s proposed changes, American almonds and walnuts will face 100% duty, whereas American apples will be levied 50% tax. India backtracked and reduced the tax rate that it had imposed on Harley Davidson high-capacity motorcycles manufactured in India after some strong words from the American President. 

India is now trying to tackle its current account deficit (CAD) and America's increased import duty on steel and steel products which affected India's engineering exports and could also increase CAD in India. India submitted to the World Trade Organisation (WTO) a revised list of 30 items on which it proposes to raise customs duties by up to 50% in the latter half of June this year.

Amidst concerns over the global trade war, key indices in the Indian share market dropped due to the restrained attitude of investors. The rupee depreciated 6.56% in July as compared to June, when it depreciated 5.19%. According to Engineering Export Promotion Council (EEPC), in 2018, exports in July expanded at a lesser pace of 9.37% down from 14.17% in June. Ravi Sehgal, Chairman, EEPC, India, recently informed the press, “Our view has been that it is a stable currency which helps exporters, providing them with predictability of dealing with the buyers. Any fluctuation and volatility on either side does not help.”

According to the report titled ‘Highlights of the Foreign Trade Policy 2015-2020’ by Engineering Export Promotion Council (EEPC) of India, “Specific Export Obligation under EPCG scheme, in case capital goods are procured from indigenous manufacturers, which is currently 90% of the normal export obligation (six times at the duty saved amount) has been reduced to 75% in order to promote domestic capital goods manufacturing industry.”

However, there are many experts who are not seeing red over the trade hostilities emerging between India and the US. Rishi Shah, Economist at the Centre for Digital Economy and Policy, informed, “The situation between the US and India should not be viewed as a trade war, at least as it at present.”


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