A study conducted by Hugo Erken, Raphie Hayat and marijn Heijmerikx of Rabobank international indicates that the U.S. trade and monetary policy will also have a significant impact on the Indian economy and could hurt plan of India to increase spending on infrastructure.
New Delhi (Sputnik): days after India announced that it would not take sides in the current tariff war between the United States and China, a detailed study claimed that in any case, India may become the victim of adverse trade policies of the USA and/or China that have the potential to destroy or 2.3% of GDP by 2022.
Research Rabobank predicts a grim problem for the government of Narendra modi that aims at economic growth of at least 8% annually in the next five years to replace Germany as the fourth largest economy in the world.
“Apart from a possible trade war, a more rapid than expected tightening of monetary policy in the US will hurt India, and it is through the outflow of capital,” the study says.
To get an idea about the consequences of a possible trade war on the Indian economy, economists estimated three possible scenarios: 1) China targeting Indian exports, 2) the US focused on Indian exports, and 3) India will retaliate in the United States of protectionism.
The study says that the administration trump wants support from its allies in tightening the trade screws on China. If India decides to agree with us on the issue, new Delhi at higher rate (20%) on exports to China that will shave up to 0.4 percentage points to India’s GDP in 2018 due to the reduction of $11 billion in exports.
“If India decides not to side with the US in targeting China, and the United States penalizes India with 20% tax on Indian exports, our estimates show that the damage to GDP could reach 0.9 per cent by 2022. The higher impact is due to the fact that the United States is a more important trading partner for India than in China. In the third scenario, India will retaliate with protectionist measures of the US by targeting US exports equal the rate of 20%. In this case, the Indian economy may face total loss as 2.3% until 2022,” the study paper reads.
Prime Minister Narendra modi aims to eliminate problems such as poverty, lag in growth due to large-scale infrastructure build by 2022. The goal clearly focused on the construction of road, rail and waterways to encourage inclusive growth in the economy.
But, research Rabobank predicted a grim task facing the government of Narendra modi in the current global situation. “In addition, a possible trade war, a more rapid than expected tightening of monetary policy in the US will hurt India, and it is through the outflow of capital,” he says.
Evaluation studies that toughening of monetary-credit policy of the Federal reserve system of the USA will lead in India loses $22 billion in lost capital inflows until 2022.
“Our model also indicates that if political risk is growing in India and Indian rupee depreciates sharply, missed the capital will amount to 32 billion dollars by 2022,” he warned.
All of these events will create major speed bumps on the way to India to economic prosperity, the report said.
Sourse: sputniknews.com
