India has a great shot to claim the top spot amid the fastest growing major economies for this year. However, India’s prospects of claiming top spot may be daunted by the ongoing trade wars – particularly between the United States and China.
The recent turmoil of the imports tariff amid the United States and China raises grave concerns about the possibility of full-fledged global trade war. Economists are of the view that India’s development prospects will get severely impaired owing to the trade dispute between the United States and China.
US and China are two of the biggest trade partners of India and it is worrisome that India has got stuck in the middle of the trade dispute between US and China; supporting one side would ignite trade enmity with the other side. If India inflicts any import duties on the items imported from China and the United States, such move could severely hit the development prospect of India’s exports section as other nations may likely counter impose imports tariff on imports from India.
This is one side of the coin.
On the other side, certain economists are of the firm view that the ongoing trade war could be a blessing in disguise for India in the long run. Their assessment is that China will be under pressure and forced to devalue its currency to remain the dominant player in the world market even though the trade war may impact the global trade in short-term. If things go on these lines, then India exports will remain more competitive with China.
There are certain other prospects that could result in a positive outcome for India:
· Despite of the fears over the side effects of trade war and the fact that India registered low growth rate during the year 2017 (excluding the quarter ending December, 2017) owing to the De-monetization and GST policies, it is predicted that India’s economy will grow at rate of 7.4 percent in the ongoing fiscal year and 7.5 percent for the next fiscal year as the Indian economy is recovering from the aftereffects of de-monetization and GST policies.
· Owing to the prospect of expenditure of the general elections in the year 2019, average inflation for the ongoing fiscal year is forecast to be 4.7% and the following year at 4.9%.
· Normal monsoon is forecast for 2018 which is a boon for the farm sector that employs more than half of 1.3 billion Indians and accounts for about 15 percent of India’s USD 2 trillion economy. Normal monsoon will aid in the enhancement of grain production and keep a track on the food prices inflation.
· It is expected that the Reserve Bank of India may keep interest rates on hold until the second half of next year.
India can hope for a better 2018 in terms of economic development despite of the impact of the trade war amid the US and China as economic development projections of India are positive. However, to ensure that India doesn’t get stuck in and face any side effects of the ongoing trade turmoil, India need to implement policies benefitting all the stakeholders involved leaving. There should be no latitude for favors to any nation or else India along with all world nations has to experience the side effects of the trade war.
Research inputs by Paruchuri Baswanth Mohan
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About the Author:
Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.in