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Hours before the visit of Indian Prime Minister Narendra Modi to the White House, President Donald Trump has announced that the United States will impose Reciprocal tariffs to its trading partners.
It could hardly come to a more difficult time for India, which is already pressed by a slow economy and slow demand.
At a joint press conference, Trump said India will buy F-35 fighters and oil and gas from the United States. The two countries will also start negotiations on the US trade deficit with India.
India manages a large trade surplus with the United States and similar negotiations and purchases of military and oil can adversely affect its economy at a time when it goes through a delay.
As the Indian economy is expected to grow by 6.4 percent in the year ending in March, its slowest in four years, the Modi Government has announced a medium -class income tax relief in the annual budget earlier this month.
Days later the country's central bank reduce your interest rate For the first time in nearly five years by 0.25 percent to 6.25 percent, with governor Sanja Malhotra saying that the less restrictive monetary policy is more appropriate in the light of the current “dynamics of growth inflation”.
Economists warn that tax breaks may not be sufficient for the bigger part of the Indians whose income is still falling below taxable limits and which can still be disintegrated from the impact of the Covid pandemic that devastates their profits.
“There is a huge base (by people) where the recovery has not returned after the pandemic,” says Kaushik Basu, a professor of economics at Cornell University. “We see this in the fact that the base of agricultural labor has increased. And agriculture can be just a parking space. “
Basu refers to people who left city jobs during the tight and prolonged blocking of Covid in India and returned to their villages. Without well -paid jobs to return to the cities, they remained in their villages, performing seasonal agricultural work.
Dhiraj NIM, an economist at Anz Bank expects tax relief to have 0.2 percent influence on the growth of gross domestic product (GDP).
“People will consume a little more, but they will also save more. Some personal loan repayment will happen, “he said. “I do not think that the impetus of consumption will compensate for a trillion rupees ($ 11.5 billion) given with a relief of too much.”
In addition, any economic impetus will be a short-term measure, while the problems it seeks to deal with “are more fundamental,” warns Alexandra Herman, a leading economist at Oxford Economics. “There is nothing (in the budget) to deal with employment or skill,” which will lead to a broader and more sustainable growth, “she says. Only about 2 percent of the Indians who are currently paying income tax and unemployment and insufficient employment have remained high, she says.
Part of India's delay may be due to cyclical conditional demand after the pandemic recovery, when the economy grows sharply. Heads of industry and civil servants believe that India is a high -growth trajectory. The country is already the fifth largest economy in the world and is expected to become the third largest by 2030.
But now, “growth problems,” Cornell's Baso says. “Although there has been inequality for at least two decades, what we see now has not been seen since 1947,” the year in which India has won its independence from the British.
Delicate economic juggling
The government seeks to stimulate growth through strong infrastructure costs such as roads and bridges. But the stimulus provided during the pandemic meant that the government had to tighten its belt in order to achieve its goal for a fiscal deficit of 4.5 percent to the next year. This reduced costs can also take some of the impetus provided by the tax relief, NIM says of ANZ.
Modi's visit comes against the backdrop of this delicate economic moment in India. President Trump talks about India's high tariffs on US cars and other products designed to protect the Indian industry and create internal jobs.
India, like Mexico and Canada, will also go into negotiations to overcome its trade surplus, but this may include discounts that could harm the Indian industry, as well as the purchases it can hardly afford. (New Delhi sewedly reduced Harley Davidson's budget rates for Harley Davidson Motorcycle.)
“It is remarkable that the Indian government has gone out of its way to avoid tariffs,” says Michael Kugelman, director of the South Asia Institute in downtown Wilson, a cerebral trust based in Washington. “A big reason for this is the fragile economic growth.”
The Indian Government also accepted its first 100 US deported without official protest, although they were sent to a military plane and handcuffedS At their press conference, Modi said they were victims of human trafficking, which was to stop. He does not take advantage of Trump their treatment from the United States, as some other countries have for their own deported.
The high steel import tariffs that the United States has already announced are obliged to influence Indian exports. However, the Indian economy is largely fueled by domestic consumption compared to other Asian economies, says Herman's Oxford economy.
This is the deeper problem that is now beginning to appear.
Kartik Muralidharan, a professor of Economics of the Dad's Chancellor at the University of California in San Diego, says the extended program for the transfer of food by the government has supported the lower half of India and may have led to their participation in the economy.
However, it and others emphasize the need for more economic reform to promote higher and more just growth.
“Overall, reforms come during external challenges,” Muralidharan says, citing India's economic reforms in 1991. The Gulf of Persian and the balance of payment crisis occurred. “We need another '91,” he says.
Cornell's Basu suggests that growing inequality will best be considered through “a slightly higher tax on super rich and uses it to support small business.”
Basu also says that small businesses have been affected by the cost of compliance with the tax on goods and services and can be simplified and reduced.
The government said it is expecting a growth rate of about 6.7 percent for the coming year, which shows strong growth of the current global landscape. But Anz's NIM says that “greater concern must increase the income per capita and the better distribution of this income so that it reaches people who need it.”
