India: Economy affected by the US policies - Rabobank

According to analysts at Rabobank, US trade and monetary policy will have a substantial effect on the Indian economy and in a global trade war, India could fall victim to adverse trade policies of the US and/or China.

Key Quotes

“To analyse the effects on the Indian economy, we look into three possible trade war scenario’s where (i) China targets Indian exports, (ii) the US targets Indian exports and (iii) India retaliates against the US.”

“Our calculations show that India will lose most in scenario iii, namely 2.3% of missed GDP growth by 2022. Mainly, this is because the tariffs will reduce exports and cause (imported) inflation, which will hurt Indian purchasing power and investments.”

“Besides a possible trade war, a faster than expected tightening of US monetary policy will hurt India, namely via capital outflows. We estimate a model of Indian capital flows to quantify this effect and find that India’s capital flows fall substantially and result in India losing USD 22bn in missed capital inflows up to 2022. Our model also indicates that in case political risk rises in India and the INR depreciates sharply, missed capital flows will amount to USD 32bn by 2022.”

“In both cases, India will face a shortage of capital since capital flows will not cover its finance requirements. The consequence will be further downward pressure on INR and possibly higher interest rates if India uses its foreign reserves to plug the difference between its finance requirements and capital flows.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.