Context:
Indian equity markets saw their steepest single-day drop in a month on April 1, as investors reacted to foreign institutional outflows and US-India trade concerns ahead of President Donald Trump’s “Liberation Day” reciprocal tariff announcement.
Foreign Portfolio Investors (FPIs) sold â‚ą5,902 crore worth of equities, the highest single-day outflow since February 28.
US-India Trade Disputes & Tariff Concerns
Ahead of reciprocal tariffs on April 2, the US raised concerns over India’s:
- High import duties on key goods like automobiles, agricultural products, medicines, and alcohol
- Unpredictable tariff changes and regulatory hurdles that restrict US exports
- Import monitoring system for laptops and dairy products, impacting US market access
- Data privacy regulations that could increase compliance burdens for US companies
- Insurance sector concerns, despite FDI cap being raised to 100%
Key Stats from the USTR Report
- India’s average import tariff (2023): 17% (highest among major world economies)
- Non-agricultural goods: 13.5% average import tariff
- Agricultural goods: 39% average import tariff
- Specific high tariffs:
- Vegetable oils: 45%
- Apples, corn, motorcycles: 50%
- Automobiles, flowers: 60%
- Natural rubber: 70%
- Coffee, raisins, walnuts: 100%
- Alcoholic beverages: 150%
Despite India’s recent tariff reductions (average now 10.66%, per CBIC), the US continues to flag concerns.
Impact on Foreign Investment & Business Confidence
- Investor Caution: Rising uncertainty over US-India trade ties has made investors risk-averse, leading to heavy foreign outflows.
- Education Loan Policy Review: Indian banks are reevaluating study loans for US-bound students due to the Trump administration’s tightened migration policies and uncertainty over educational support.
- Corporate Strategy Adjustments: Companies in auto, tech, and pharmaceuticals are closely watching policy shifts to reassess investment strategies.
Outlook & Future Concerns
- Stock Market Volatility: Further fluctuations likely as global investors react to tariff announcements and trade negotiations.
- Trade Negotiations: India may consider reducing tariffs in key sectors to avoid a full-blown trade war.
- Foreign Investment Impact: Prolonged uncertainty could affect FDI inflows and business expansion plans in India.
- Rupee & Inflation Risks: Potential currency depreciation and higher import costs could emerge if tensions escalate.
The US-India trade tensions have rattled investor sentiment, leading to a sharp market correction and concerns over economic policy shifts. As the world watches Trump’s reciprocal tariff rollout, Indian policymakers may face pressure to adjust trade policies to maintain global investor confidence.
