Govt working to cushion exports from US tariffs, says Chief Economic Adviser

Chief Economic Adviser (CEA) Anantha Nageswaran on Saturday said the Centre, along with various stakeholders, was actively working overtime to cushion the export sector from the tariffs imposed by the United States. The imposition of an additional 25 per cent tariff by the US has raised the overall duty to 50 per cent.

Speaking virtually at an event organised by the Indian Chamber of Commerce, he said crises, whether minor or major, often act as catalysts, providing focus and purpose for all segments of society -- including the government, private sector, and households -- to undertake necessary actions that might otherwise have been delayed.

Since the tariffs took effect on August 27, conversations are talking place about involving exporting bodies, private sector promotion agencies and the ministries concerned, he said.

"The Ministry of Finance as well as other ministries are working overtime to formulate a strategy, aimed at providing both a time cushion and a financial cushion for the affected sectors so they can weather the present storm and emerge stronger."

Talking about the trade front, Nageswaran said a proposed agreement with the US, negotiated "in good faith" and close to conclusion, had been delayed due to "unexpected developments", though not denied.

He also spoke about India facing a penal tariff for purchasing Russian crude oil, which the Ministry of External Affairs has described as unreasonable. He expressed hope that tariffs would be "short-lived" and that "an understanding regarding the importance of the larger dimensions of the India-US relationship will eventually prevail".

The CEA further highlighted that there were several "silver linings" that point to a robust and improving economic environment. He pointed out that India's real GDP grew by 7.8 per cent year-on-year in the first quarter of the current financial year, supported by the "GDP deflator". Besides, nominal GDP growth came in at 8.8 per cent, exceeding private sector economists' fears of 8-8.2 per cent, he added.

Nageswaran attributed the lower nominal GDP growth compared to previous quarters to "good deflation" -- a decline in input costs such as crude oil, industrial metals and raw materials -- while enterprises' pricing power remained intact.

The manufacturing sector's Gross Value Added (GVA) rose by 10.1 per cent in nominal terms and 7.7 per cent in real terms, providing hope that full-year nominal GDP growth will stay near the 10.1 per cent mark assumed in the Union Budget.

Nageswaran said the "huge tax cut" announced in February for middle and upper-middle-income households means a family of two earners with annual income of up to Rs 26.7 lakh will pay no direct income tax, which is already visible in higher advance tax payments. Further relief is expected through rationalisation of GST rates, reduction in the number of slabs and simplification of processes, he said.

The CEA highlighted the employment-linked incentive scheme announced in the July-2024 Budget, which rewards both employers and employees. He said the scheme was crucial for striking a balance between job creation and competitiveness in the age of AI.

He also mentioned India's credit rating upgrade by Standard & Poor's, a first in 30 years, and expressed confidence that other agencies such as Fitch may follow.