Mumbai: The trade deal between India and the US announced last night removes the overhang of tariffs and is an extremely positive development for the domestic economy, said C S Setty, chairman of India’s largest lender State Bank of India (SBI).
“This, along with the free-trade agreements India is signing, provides greater clarity for trade and therefore benefits the economy and exporters,” Setty said over phone.
On 27 January, India and the European Union (EU) signed a free-trade agreement, with Prime Minister Narendra Modi saying the agreement would strengthen India’s manufacturing and services sectors and boost investor confidence.
Setty said on Tuesday that following the imposition of 50% tariffs on exports from India to the US, exporters were able to diversify into other geographies. US President Donald Trump had imposed a total of 50% tariff on Indian goods shipped to the US, with textiles and auto components among sectors that were expected to be affected the most.
“The 18% tariff announcement will immensely benefit exporters of textiles, shrimps, among others. Overall, I see this as an extremely positive development for the Indian economy as the tariff overhang is removed,” said Setty.
US president Donald Trump said late on Monday India time that he and Prime Minister Narendra Modi have agreed to a trade deal between India and the US, nearly a year after the two sides agreed to work towards a comprehensive bilateral trade agreement.
Under the deal, Washington is to lower its reciprocal tariff on Indian goods from 25% to 18%, while India would reduce its tariffs and non-tariff barriers against the US to zero, Trump said. New Delhi has not commented yet on the duties it will levy on US imports.
The US is also removing the extra 25% duty on Indian goods applied in response to India’s purchases of crude from Russia, Bloomberg reported, citing officials familiar with the matter.
Meanwhile, on concerns that high tariffs would impact the asset quality of banks, Setty said that did not happen.
“Asset quality of the sector was not impacted in the wake of tariffs. There were multiple relief measures provided by the RBI and the government. While we did not find many takers for these reliefs, we did see exporters diversify into other geographies in the last three months,” he said.
In November, the Reserve Bank of India (RBI) announced a clutch of measures to ease their access to working capital, enable higher borrowing limits, and defer loan repayments until the end of the calendar year.
The RBI had notified a list of 20 eligible sectors across fisheries, chemicals, plastics, rubber, leather, textiles, footwear, precious metals and semi-precious stones, iron and steel, aluminium, electrical machines, surgical equipment, vehicles, furniture, and nuclear reactors. The central bank had allowed a deferment of payment on all term loans and the recovery of interest on working capital loans due between 1 September and 31 December.
Experts had earlier said they see little impact on India on the back of US tariffs. RBI governor Sanjay Malhotra had said in December that he sees “minimal impact”. “It’s not a high impact, because ours is mostly a domestic demand-driven economy. A few sectors are certainly impacted by it…and we have given out a relief package. The Government of India has also given out a relief package,” Malhotra had said.
Setty had also held similar views last year. He had in August last year predicted limited impact on its books from stiff US tariffs, saying the bank hoped the issue gets resolved soon enough to rekindle capital expenditure plans of corporates. He had argued that the banking sector in general, and SBI in particular, does not have significant exposure to sectors that rely on US exports.