CEA V Anantha Nageswaran says Trump’s 50% tariffs on India will be short-lived. He downplays concerns over GST revenue losses for states, citing the GST guarantee and potential economic growth from rate rationalisation.
New Delhi: Chief Economic Adviser V Anantha Nageswaran addresses a press conference in New Delhi on Friday, January 31, 2025. (Photo: IANS/Prem Nath Pandey)
Chief Economic Advisor (CEA) V Anantha Nageswaran on Friday said that the impact of US President Donald Trump’s imposition of 50 % tariffs on India will be “short-lived” and is proving to be “counterproductive for the US”.
He added that tariffs on Indian exports will make business conditions “extremely challenging” and pressurise economic growth in the coming quarters.
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The ripple effects of the tariff hike will be felt particularly in the second and third quarters of the current financial year, he said.
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“ You can run the calculations, but you’ll need to make several assumptions regarding second- and third-round effects on uncertainty, capital formation, and employment. I believe GDP growth will be affected in the second and third quarters if the situation persists,” Nageswaran told a media outlet.
“I do feel that high tariffs will be more short-lived than long-lived,” Nageswaran added.
He stated that the measures were “not yielding the desired results and were becoming counterproductive”.
“So the fiscal second and third quarters will be critical, but I hope by then the second 25 per cent (tariff) will have been resolved. If it continues into the next financial year and lasts, that would be a huge challenge both in terms of employment and GDP growth,” he stated
He stated that it is difficult to find new export markets, and in that sense, it raises the dependence on domestic tools of growth much more. “So, that is a formidable task on hand for us”.
He stated that the GST revamp will help boost consumption.
He played down the concerns over revenue losses for states due to GST rationalisation. Nageswaran said the old system before GST had no “protection whatsoever” and states should “do more on realising their own tax revenues”.
Nageswaran noted that, “In 2021, under the old system, states would have had no protection against the GST collapse. If they had been collecting their own sales tax revenues, there would have been no safety net. The 14 per cent GST guarantee, however, provided them with a cushion.”
He added that it is “premature” to conclude that states will definitely face revenue losses due to the rate rationalisation. “We are not considering the possibility that lowering rates could stimulate more economic activity, which could countervail the impact on prices. It’s essentially a price-versus-volume scenario. Therefore, it would be hasty to assume a significant risk of revenue loss for states,” he said.
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