Ajit Ranade: Trump’s policies offer India a pretext to reset import tariffs
Subscribe to enjoy similar stories. Let’s take stock of India’s external environment. Our pile of foreign exchange has dropped by nearly $80 billion or about 12% in five months.
Much of this loss was because the Reserve Bank of India was trying to defend a falling rupee. The rupee-dollar rate is racing towards 88 and beyond, down by 6% in about six months. This steep fall is spooking foreign portfolio investors in stock and bond markets; they pulled out $11 billion in the last quarter of 2024.
our stock of dollars is now lower than our total outstanding foreign debt. On the trade front, our merchandise trade deficit threatens to breach $200 billion by the end of this fiscal year. Interest obligations on foreign debt are close to $25 billion.
On the capital account, net foreign direct investment (FDI), or gross inward flows less outbound investment, might hit low single digit this year. Net FDI from April to October at $14 billion was a 12-year low. Outbound FDI in the same period was $34 billion and has been steadily rising for years.
High-profile exits included foreign suppliers of Apple, which sold off their shares to the Tata Group. Indian companies too have invested in foreign shores, adding to dollar outflows. Whirlpool has announced that it will prune its stake in India from 51% to 20%, which also counts as outbound FDI.
There are several other such examples of foreign investment winding up or being handed over to Indian owners. The woes of a sharply falling exchange rate are partly to be blamed on trade policies of US President Donald Trump. The impact of his announcing stiff import duties of 25% on imports from Canada and Mexico, and 10% on Chinese goods has been studied in great detail by several analysts.
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