Prime Minister Narendra Modi and President Donald Trump (file photo)Image Credit source: PTI
US President Donald Trump has made a big announcement regarding India late on Monday evening. Trump has reduced the reciprocal tariff imposed on India from 25% to 18%. This announcement by Trump has raised new hopes regarding India’s foreign trade and stock market. This statement of Trump has come to light after his phone conversation with Prime Minister Narendra Modi. Modi also welcomed Trump’s decision. Now soon the picture will become clear on the trade deal between India and America. But the decision will first impact the stock market.
America is a big trade partner of India. Many sectors like IT services, pharmaceuticals, textiles, auto parts, gems and jewelery are dependent on the American market. The reduction in tariff from 25% to 18% simply means that the products of Indian exporters will be cheaper in America and their competitiveness will increase. This can boost Indian exports and help in controlling trade deficit.
Also read- Donald Trump softens on tariff, reduces it from 25% to 18%
Oil imports and geopolitical implications
Trump has also said that India will stop buying crude oil from Russia and will buy more oil from America and Venezuela. If this happens then India’s energy import equation may change. American oil is generally costlier than Russian oil, which may increase India’s import bill. On the other hand, increasing energy trade with America can further strengthen India-US strategic relations, which can have indirect benefits in the form of investment and technical cooperation.
Brightness will return to the stock market
The effect of this announcement can also be seen on the stock market. The stock market, which has been facing the pressure of American tariffs for a long time, will regain its shine. Shares of export related sectors like IT, pharma, textile and auto components may rise. Investors will hope that the earnings of these companies will improve due to increase in demand in the American market. However, there may also be pressure in sectors where American imports are at risk of increasing. Apart from this, due to uncertainty related to oil imports, energy companies and rupee may be affected, due to which there may be fluctuations in the market.
Also a challenge for India
According to Trump’s claim, India will also move towards reducing its tariff and non-tariff barriers on American goods to zero. If this happens then American products may become cheaper in the Indian market. This will increase competition in electronics, medical equipment and energy sectors. There may be pressure on domestic companies, especially those companies which are in direct competition with imports. However, this can provide cheaper and better options to Indian consumers, which can also be helpful in controlling inflation.