Dear Readers,

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Are we witnessing a U-turn from globalisation back to localisation? While India enjoyed McDonald’s, America embraced the samosa as trade barriers broke. But the world is now changing, and economic disorder is setting in. Economists and analysts will assess the macroeconomic impact of Donald Trump’s tariffs, but let's not forget it would also hit the aspirations of Indians who look at America as a dream destination.


Trump has plunged the global economy into turmoil. Should businesses invest or hold back? What will be the impact on exports and imports? Governments, financial experts, and industry leaders worldwide are scrambling to devise strategies to navigate Trump’s reciprocal tariffs—now a reality. Every country and company is evaluating various scenarios.

The promise Trump has made to America has been fulfilled, but the impact will be extremely uncertain.

While you can praise Trump for intervening in the wars in Ukraine and the Middle East, his tariffs will disrupt many countries, and many will become poorer. The only question before every economy, including India, is how to deal with Trump’s reciprocal tariffs. Countries like China, the European Union, and Canada have already spoken about retaliation. India is yet to decide. But broadly, the world has been disrupted in a big way.


How should India fight back?

India must plan for the long term rather than dealing with the short-term impact of tariffs. There are enough opportunities that India can generate. The biggest advantage is that India has a big market. But unfortunately, India has missed the manufacturing bus. Despite promising incentives such as PLI schemes, it has not accelerated. Even if India builds a strong manufacturing base, a lot will change as automation spreads. Indian companies need to see the big picture.

For years, we praised the IT growth story, which is great. But in reality, we were exporting youngsters to maintain computers of global companies and write low code. We couldn't build advanced innovations like AI or ChatGPT. Neither have we made any great headway in products like semiconductors or hardware that could have given us recurring earnings.

Amid this, the GCC (Global Capability Centres) story in India is a silver lining and shaping up really well. But currently, it is largely limited to only one state. If India focuses on GCCs, there are bigger chances that not just America but companies from other countries will see India as an outsourcing destination. This will be a win-win for all—other countries will save costs while Indians will get more jobs.


Impact on the Indian economy

According to Barclays, there may be a 30-basis-point hit to India’s GDP due to Trump’s tariffs. Also, exports may fall by 9%. Similarly, Nomura says there would be a loss of wealth for Asia, and many other economists have voiced similar views. But I think, broadly, it's not just a few basis points of loss in terms of value, but it's an opportunity loss as well. Whether we create such opportunities in India or not is a different question but crores of aspirational Indians and businesses will have to wrap up their dreams of either doing business with America or working there. There are 10 Indian product segments that are highly dependent on exports to the US, such as jewellery and metals, electricals and pharma, IT, minerals, and textiles, which will be affected by Trump's tariffs.

Indian policymakers will have to make a strong case with America and identify the IPs that we can share with them. The government also needs to prove that although America imposes higher tariffs on Indian goods, the missing link here is the dollar exchange rate and the lower value of the Indian currency against the dollar, which makes Indians pay more.

America as a superpower

We may blame Trump, but he is doing what is needed for his country. There is nothing wrong with it. We have to understand that whether it's banking or defence, manufacturing or services, America has built the companies of the future and managed to offer low tariffs to the world for decades. Remember, the market values of individual companies like Nvidia and Apple are higher than the GDP of many countries.

According to data from The Economist magazine, America has a population share of only 4% of the world (India and China have around 17%-18% each), but it generates more than 25% of global output. This share has not changed since 1980. This, I think, is the most important data that other countries should follow and work on.

As usual, I am also adding here the top five in-depth articles/copies that we published this week. Trust, you will find them meaningful.

1. Trump's 27% tariff has both wins and losses for Indian exporters: Experts
2.ICMAI President Bibhuti Bhusan Nayak supports merger of CA, CS, and CMA Institutes for national benefit
3.PAC Report: Experts push for GST system overhaul to alleviate MSME strain
4.Trump tariffs could prompt India to accelerate its strategic trade initiatives, say experts
5.NFRA pushes audit committees for stronger audit oversight and risk management

Happy Reading

Amol Dethe
Editor
ETCFO

(Editor's note is a column written by Amol Dethe, Editor, ETCFO Click here to read more of his articles exploring several buzzing topics)

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