India's economy is showing resilience despite turmoil in international trade and fiscal climates, backed by robust domestic demand and government spending, as indicated by a report published on Wednesday.
The SBI Capital Markets analysis noted that Indian markets have remained resilient even when the aggressive tariff policies of the United States have become a top issue globally.
"India remained surprisingly insulated in Q1, clocking an above-par GDP growth. There is recognition that, amidst global headwinds from high tariffs imposed on India, a domestic consumption stimulus is in order. The GST reform is a welcome step in this regard," the report said.
“Despite a weaker US dollar, the Indian rupee hit a record low, down about 5 per cent year-on-year, with the Reserve Bank of India (RBI) limiting intervention and unwinding forward positions to preserve reserves while letting depreciation aid exports,” the report said.
Indian exporters are confronting retaliatory duties of up to 50 percent, such as a 25 percent duty linked to Russian crude purchases, thus increasing cost of doing business. The report says that these problems are keeping trade flows and profit margins in check.Currency fluctuations have also mirrored the pressure. "Even with a softer US dollar, India's rupee touched a record low, falling approximately 5 per cent year-to-date, with the Reserve Bank of India (RBI) capping intervention and reversing forward positions to maintain reserves while allowing depreciation support exports," it added.
The report further stated that "capital flows continue to be subdued, while the current account remains manageable even with softer merchandise exports due to tariff pressures."
India's economy grew 7.8 percent in Q1, with the government's decision to streamline the GST structure set to infuse almost ₹50,000 crore into the system, thus boosting consumption, the research arm noted.
SBI Capital Markets warned that fiscal pressures in the US and UK are adding to trade-related pressures, with high debt levels steepening bond yield curves.
“At the same time, weaker job data in the US has lifted the probability of a rate cut in the September policy review. In India, the curve remains steep as elevated state government borrowing continues to weigh on the long end,” the research wing noted.
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