As US President Donald Trump’s tariff actions threaten to disrupt global trade, the State Bank of India (SBI) released a report on March 17, suggesting that India could actually benefit in an increasingly uncertain world of tariffs.
According to SBI, India’s economic resilience could be strengthened even if the US imposes reciprocal tariffs, as trends point to potential long-term challenges for the US economy.
SBI Analysis: US Economy Shows Signs Of Weakness
The SBI report highlights that the US economy’s post-COVID recovery may have been an outlier driven by expansive government policies.
However, long-term trends suggest a possible slowdown in US GDP growth, accompanied by a reduction in US exports and consumption.
The report further notes that the value added to the economy is declining, with shrinking Total Factor Productivity (TFP) growth.
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Additionally, high wages in the US could discourage new investments, and net savings to GDP have dropped to the lowest level since 2011.
The US debt-to-GDP ratio is on a continuous rise, indicating potential economic challenges.
Despite the strength of the US currency, the report notes cyclical trends with decreasing peaks.
Only if the US achieves structural adjustments, the report adds, will there be potential for GDP growth to shift upward.
However, such adjustments come with short-term costs and uncertainties.
Impact Of Tariffs On India: SBI’s Optimistic Outlook
Despite concerns over the impact of reciprocal tariffs from the US, SBI predicts minimal effects on India’s economy.
The bank estimates that exports from India to the US could decline by 3-3.5% if such tariffs are implemented.
However, SBI argues that India’s diversified export base, including advancements in manufacturing and services, will offset this decline.
India has actively worked to expand its trade reach, exploring new routes that connect Europe to the US via the Middle East, and refining its supply chains.
These efforts, according to SBI, will help mitigate the effects of any export reductions.
Strategic Free Trade Agreements Position India For Growth
In its report, SBI emphasizes that India’s growing network of Free Trade Agreements (FTAs) strengthens its position in the global trade arena.
Over the past five years, India has signed 13 FTAs with countries like Mauritius, UAE, and Australia.
These agreements cover a wide range of areas, including tariff reductions in manufacturing and agriculture, rules on services trade, and digital trade issues such as data localization and intellectual property rights.
SBI notes that the FTA with the UK alone could increase bilateral trade by $15 billion by 2030.
The bank anticipates that future FTAs will primarily concentrate on enhancing digital trade, an area poised to contribute up to $1 trillion to India’s GDP by 2025.
Technology’s Role in Shaping The Future Of Trade
SBI also highlights the significant role of technology in shaping the future of global trade.
The report acknowledges that US dominance in the tech sector has driven its global influence.
However, SBI warns that a ‘Deep Seek’ moment an unforeseen technological shift could disrupt this balance of power and destabilize much of the current global trade structure.
In conclusion, while the potential for tariff actions by the US looms large, SBI’s report underscores India’s growing resilience.
By diversifying its export markets, strengthening trade agreements, and focusing on digital trade, India is positioning itself to thrive in an increasingly complex global economy.
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