Trump tariff impact: Brace for exchange rate wars too: Business Standard 3rd April 2025

 Three things need to be kept in mind when analysing the impact of the new tariff order imposed by the US. The first is whether higher tariffs will lead to more domestic production in the US. If the price factor kept local production down, then this will help. But the consequence will be higher inflation for sure. 

 

Second, the relative tariffs now imposed across countries matter. Hence, India has to look at competition from countries which attract lower tariff rates in the new regime. The third is whether the relatively smaller countries can scale up to substitute for others. This begs the question as to whether countries have the ability to scale up substantially to substitute other exporters.

What has the US done? 

 

There are new tariff rates announced for 180 countries with the base level being 10 per cent. The tariffs have been fixed at broadly 50 per cent of the rate countries are charging US imports. Therefore, there is a concession reciprocal tariffs structure announced. 

 

China has a higher rate of 54 per cent because the 34 per cent half-tariff will be on 20 per cent imposed earlier. The US has calculated the effective tariff rates on US goods in these 180 countries based on both nominal rates as well as indirect protection provided through different measures. 

Should India be worried? The answer is yes. While growth in India is largely domestic and hence the overall gross domestic product (GDP) effect may not be more than 0.15-0.2 per cent, assuming exports to US falls by 10 per cent, overall trade will be impacted due to every country going back to the drawing board. 

But the problem will be at the micro level where industries like pharma, electronics, precious stones, readymade garments, engineering, leather goods are concerned. 

 

At the industry level, there will be a hit as other competing exporters to US would rework their models. Indian companies may have to cut on price to retain advantage or hope the rupee depreciates. The latter is possible because high tariffs in US means higher inflation for sure, which will keep rates up and the dollar stronger. But profitability will be under pressure. Also in the present state of intense competition, it will be hard to substitute other markets as all competitors will be working on the same lines. 

MSMEs under pressure

 

In particular, the MSMEs will be pressurised again. They have a major share in exports and are concentrated in the sectors that are going to face higher tariffs. So clearly, the woes of the MSMEs will not end and the government may have to work out a strategy here to protect them. More production linked incentive (PLI)-like schemes is a way out besides the usual channel of credit flows. The entire export strategy needs some serious and fast rethinking. 

 

The financial markets are the ones which will be unequivocally affected. We can be prepared for a more volatile exchange regime as the dollar will keep swinging in both directions during the year. This will mean more Reserve Bank of India (RBI) intervention for sure, with the proclivity to allow for depreciation to support exports. 

Such a measure be done by probably all other countries as well, which can lead to an exchange rate war besides trade war reminiscent of the Depression time. While this is an extreme situation, it cannot be ruled out.

Further, the US Fed will have to be more gradual on rates as US inflation will rise for sure, as these high tariffs are transmitted. Even if domestic production picks up, it will be at a higher cost as the reason for high imports was to save on costs.

At the global level, slower trade will also mean slower growth, especially for export-oriented economies. There are two possibilities on how the world will react. The first is to also raise tariffs, which can lead to a full-fledged trade war. This could be in pockets but unless countries collaborate, which is unlikely, this may not quite work out. The other is to get into a dialogue with the US, which can be through bilateral talks or country-groups getting together. 

 

As a corollary, countries may start talking to one another to further trade relations keeping US out. This looks more likely. But for sure, this year will be tumultuous on economic grounds.

Taking the tough road: “Brick by Brick” offers insights into building and selling ventures: Book review: Financial Express 30th March 2025

 Brick by Brick by Manish Vij is another rather inspiring book which tells the reader how to move along the road of success when dealing with enterprise. It is based on his experiences over the years of setting up, running and selling firms, which involves the entire spectrum of business. The subtitle includes the term ‘middle-class roots’, which is not very common. The author’s intention must be to convey to the reader that ordinary people can achieve and that it is not imperative to have the ‘inherited advantage’ of birth when it comes to shining in enterprise. Or it could be a strong message to say that if one works hard and shows grit when pursuing a dream, the background does not matter.

The author’s story is not very different from several entrepreneurs who have succeeded in what could be startups. Starting from the launch of kabadibazaar.com from a college hostel, the author launched an array of agencies in different sectors, including letsbuy.com, a prominent e-commerce platform. This can go down as an example of a successful entrepreneur in the internet space where value-added services are provided, and to this extent does not require heavy investment in capital, which is the case in manufacturing. 

The storytelling in this book is about the different issues that come up while being a founder-entrepreneur. His journey through the different ventures he spearheaded involved all the steps of starting an enterprise to the final stage of selling the same to investors. This would mean having the power to germinate the idea and then get in the requisite inputs in the form of capital and people to make it happen and also ensuring that the enterprise is successful enough for investors to be more than willing to pay money for a share of this success.

There are learnings along the way that are important and this is what the author summarises at the end of each of the chapters. There are around 12 specific chapters having takeaways that are summarised at the end. While his stories about the different enterprises he started are personal, the focus is evidently on the specific challenges in each of these endeavours.

To begin with, he believes entrepreneurship is exciting and one has to get their hands dirty. This means that having the mindset is what matters as this may not be everyone’s cup of tea. After selecting the problem which is appealing, one should pursue it after carefully studying the pro and cons. In his case it was the internet-led  industry. Once in, one should be prepared to go till the end and not give up along the way, as there are sure to be challenges. This is why commitment to the enterprise is imperative. This would be the starting point to be successful in any enterprise and it can be inferred that we need grit and resilience to ensure success.

The author also talks of what he calls an irrational self-belief to be the driving factor. One needs to have the belief of being able to do something better than others, which includes not just executing the idea but also bringing out the best service while employing the best team. Any doubt in oneself can put one on the defensive all through. On deeper reflection it can be seen that all successful entrepreneurs in this space have had similar self-belief, which can also border around arrogance at times, as it is necessary to shed modesty to drive one all the way. 

At the same time he talks of never hesitating to ask for help when required and hence one should not be overcome by hubris. This has been useful in all his endeavours, especially when encountering quandries.

At the other end he does talk about how he made successful exits from his ventures when he found the investors who paid the right price. How then does one sell at the right price, especially if there is no distress driving such a step taken? His experience shows that exiting in a bearish market or the start of the bull market is not the right time, though admittedly this is a judgment call that anyone has to take, as often getting the right match will be difficult. His advice also is that one must either undertake a minority sale or a full sale. Selling a majority and retaining a minority works only if the founder is able to detach from the business and work as an executive on day-to-day affairs.

But, more importantly, post exit, the founder must retain the mindset and be ready to hit the ‘start’ button again.
Hence Vij does look back at his story and links every step taken to what is needed to be successful in creating successful businesses. His various manoeuvres into different enterprises make interesting reading and can be inspirational, though admittedly the author must have gone through significant turmoil in the course of these journeys. There are little narratives of his moods and emotions as he went around these myriad steps of setting up, running, negotiating for capital and also selling the ventures.

Today it has become incumbent on several successful entrepreneurs to narrate their stories to set some kind of template for others. The issue is while the qualities that are spelt out are clear and sound very logical, the main question is whether potential entrepreneurs really have this mindset.

In fact, there have been more cases of failure in the startup space in India, which still attracts a lot of young professionals who would rather do something different. All may not have the same fighting spirit and grit that Vij had in his journey. But for sure, the little tales narrated would strike the reader, especially if she is also on a similar path.

Book details:

Title: Brick by Brick: From Middle-Class Roots to Entrepreneurial Success

Author: Manish Vij

Publisher: Penguin Random House

Number of pages: 240

Price: Rs 599

A Peek Into The Future Shows How FY26 Will Be For India: Free Press Journal 29th March 2025

 

here is apprehension about what could happen, and until there is clarity, markets will be jittery. Given this background, the following looks likely to be the state of economic affairs in the country.

As FY25 comes to an end, it is always interesting to conjecture on a practical basis what FY26 would look like. The Indian economy has done rather well in FY25, though the turbulence following Donald Trump taking over as president and talking tough on tariffs has affected financial markets across the world. There is apprehension about what could happen, and until there is clarity, markets will be jittery. Given this background, the following looks likely to be the state of economic affairs in the country.

The overall growth would be stable and move slightly higher in FY26. The main reason is that India is basically a domestic oriented economy where demand is driven by home factors. Therefore, while any hit in foreign trade due to tariffs will affect exports, the impact on the GDP growth would be limited and not be more than 0.2%. Hence, a growth of around 6.6-6.8% would be a conservative estimate for this year. That said, there would be certain sectors at the micro level which will bear the brunt of tariffs as exports get affected. This would be mainly readymade garments, pharma, electronics, engineering and precious stones. These segments would have to be monitored closely for possible impact on exports.

Consumption should be better this year. This would be on account of two factors. First, the government has announced in its budget that there would be a revenue loss of Rs 1 lakh crore due to the income tax benefits being given, which intuitively means more money in the pocket. While a part would be saved, there would be a larger amount spent. Therefore, there is reason to be sanguine. Second, with inflation coming down, the real purchasing power would improve, leading to higher consumption. While the overall impact may not be one to warrant acceleration, it would mean a gradual upward movement.

Investment so far has been mainly sponsored by the government at the central and state levels. The common explanation given is that when there is excess capacity, especially in the consumer goods segments, there is less incentive to spend more on investment. As consumption picks up, there will be better utilisation of capacity, which, in turn, will lead to upward movement in private investment. This would be good news for the overall growth as well as markets

Inflation would be another positive factor, assuming that the monsoon is normal. Inflation would be averaging 4.7% in FY25 and has been high mainly due to higher food inflation. With food inflation coming down, there would be a positive impact on prices in FY26. The non-food inflation, also called core (which excludes food and fuel), has been stable at 4%. This will mean that there will be few inflationary pressures on the domestic front. The global political situation may not improve, but the crude oil price will probably remain stable in the range of $70-80. This will be partly also due to the demand being lower, given that the global growth is expected to be impacted more by the tariff talk.

Lower inflation will also mean that the RBI will continue to lower interest rates. While the repo rate may be expected to go down to 5.75% by December, it will be driven by data. From the point of view of a saver, the peak rate regime is over. For borrowers, the path of movement has to be monitored. The pattern of the monsoon will be critical in terms of how the RBI lowers the repo rate. The arrival, spread, and intensity of the monsoon are important here, as the RBI tends to be more circumspect around this time of the year to gauge the possible impact of the rains on farm production and inflation. It has been seen that the TOP problem (tomatoes, onions and potatoes prices) has become an annual one due to seasonal changes, which affects these crops during September-October. These prices have the potential to skew food inflation quite sharply.

While all these signals are positive, there are others which would be hard to predict at this stage. First is the state of markets. While improvement in the economy should ideally also be reflected in better earnings of companies, the global factor is hard to predict. Today, the FPI flows have been erratic, based on how strong the articulation of various countries is regarding US policies. This will continue to be uncertain for sure, and hence, the stock market will be hard to conjecture. But given that the Trump tariff issue did lead to markets bottoming out at around 75,000 for the Sensex, an upward movement can be expected.

Second, the value of the rupee would also be guided to a large extent by the global factor. It has been observed that the dollar has been swinging from getting ‘stronger’ to ‘weaker’ based on actions taken by the US on tariffs. The Federal Reserve has also indicated that it will be more in the wait-and-watch mode before going aggressively on rates. A stronger dollar can pull down the rupee, and this is something which ideally should not be the case. But withdrawal of the FPI and a possible higher trade deficit can put pressure on the rupee. Therefore, a range of Rs 86-87/$ looks a fair range as of the present.

Third, the issue of job creation will be interesting. The EPFO data does show that more numbers are being added, which should continue. However, in the organised sector, several companies have announced reductions in staff count in domains such as auto and IT. The threat here is more from the technology side, with the proliferation of AI in several businesses. The logistics and construction industries have added to the headcount in the private sector, though the challenge here is that these jobs are not high-paying. This becomes important in the context of consumption, as such jobs do not give the power of ‘discretionary spending’, which is what the economy requires.

Hence, the overall emerging picture will be one of a resilient economy with a few clouds of uncertainty, especially so as, in a globalised set up, there are bound to be external influences.

Can religious tourism boom? Economic Times 25th March 2025

 

MPC should take savings into account" Financial Express, 24th March 2025

 The credit policy statement overviews the economy, analyses pain points, and delivers a verdict on the repo rate. It also encapsulates the state of the world economy, making the narrative quite comprehensive. One area which could probably be considered for incorporation in the document is savings.

The growth in savings affects banking significantly. Any talk of deposits in terms of growth or composition reflects the circumstances on the savings front. In fact, the major raw material for the banking system is deposits. This element does not find mention in the statement although it is a vital part of the monetary ecosystem.

First, deposits serve as the base for credit generation. Slower growth in deposits relative to credit leads to the second issue of liquidity. Liquidity is always spelt out in the statement as the Reserve Bank of India (RBI) underscores how it has evolved during the period under consideration. In fact, any measure to stabilise liquidity is a result of what has been playing in the background — deposits. The basis of having variable rate repo or variable rate reverse repo is dependent on how the deposit factor has played out.

Third, the growth in deposits also has a bearing on what happens to bond yields through the liquidity route. Tightness in liquidity invariably ensures bond yields either stiffen or remain unchanged even if the repo rate is lowered. When the central bank targets the weighted average call rate as part of monetary policy, the state of deposits is again important as it affects liquidity. Therefore, deposits are a very critical part of the liquidity piece.

Deposits are also important as they relate to the transmission process. Very often, the policy statement has spoken of incomplete interest rate transmission. While a part of the lending rate transmission takes place automatically when the repo rate is changed, it is not so for the marginal cost of funds-based lending rate-linked credit. For the needle to move, the deposit rates matter. Therefore, the entire edifice of the efficacy of the repo rate transmission rests on the action taken by banks on the deposit rates. This would, in turn, depend on the rate of growth of deposits.

In fact, in the past three months or so, the RBI has continually tried to plug the liquidity gap caused by slow growth in deposits through various measures before lowering the repo rate. In a way, the precondition for lowering the repo rate to be effective has been met not through the system, but through RBI intervention.

The motivation of changing the repo rate was based traditionally on targeting inflation, though of late, the focus has shifted to growth too. The mandate of the Monetary Policy Committee (MPC) was to target inflation, while the policies prior to its establishment aimed to balance growth and inflation. The MPC also had to ensure a lower repo rate got transmitted to lower lending rates, enabling borrowing and boosting growth. But, progressively, the transmission gets sticky mainly due to problems with deposits. There can hence be a case for the policy statement to evaluate the state of deposits separately.

The credit policy deals with banks in particular, but savings span a wide section of institutions. While banks are the mainstay, migration is seen to other avenues like mutual fund (MF), insurance, pensions, etc. It means savers have tended to turn into investors and venture into the market. Both MFs and the National Pension System have this orientation. This has become more significant during the pandemic when the repo rate was lowered to 4% and deposit rates went down. With the markets doing well, there was a natural tendency for funds to move away from the banking system.

The deposits issue became quite serious in FY25 where the liquidity deficit grew, partly also due to government spending being on the slow track due to elections. This is important from the monetary policy standpoint as the RBI is doing everything to push up liquidity, but it is only scratching the surface. The problem lies in deposits, not growing at a suitable pace.

So it may be relevant for the MPC to deliberate on savings when discussing the repo rate. As the pace of growth in deposits has a direct bearing on liquidity, it would be useful to consider this factor as it will impact the transmission of rates. By focusing more on lowering the repo rate when the system needs central bank support on a daily basis, the onus has shifted to the RBI. This works in the short run, but cannot in the medium term. It is possible that when the new fiscal year starts liquidity will normalise, as demand for credit tends to be low.

But savers are looking at the market, which should be seeing upward traction once India Inc performs better. Such situations can recur more frequently. This may not be unique to India as the monetary policy statements in other countries too do not really talk of this aspect. But then there has been large-scale quantitative easing, which is only being rolled back periodically. In India, there was never such a quantitative easing process. That makes it even more important to consider the deposits factor.

Meaningful Numbers: A Deep Dive Into India’s economic future: Financial Express 23rd March 2025 (Book review)

 ndia has two goals in front of it—a $5-trillion economy and Viksit Bharat, where it is aspired to become a developed economy by 2047. This would also mean reaching this threshold by the 100th anniversary of independence. While talking of these targets everywhere is now very much in vogue, with all future planning being associated with Viksit Bharat, have we stopped to think beyond this number? This is where Prosenjit Datta brings out a remarkable book, titled Will India Get Rich Before It Turns 100?

This is important, as we need to distinguish between a number and the quality of the same. Let us look at the number first. Datta goes through a series of combinations of growth numbers that will make this possible, and depending on how we choose to define the growth rate for GDP or gross national income in nominal terms and population, one can reach the magic figure of high per capita income, which will be close to around $14,000 as it stands today.

However, over the next 20 years, the author explains, the World Bank (which does broad classification of countries based on income) will shift this goalpost ahead and the number can be higher. And, more importantly, if one does similar extrapolations for various countries, such an achievement looks possible at some time or the other. Therefore, the number per se, though important, may hold for several other nations too, which could get there faster.

What is important is the quality of this per capita income. This is where the title comes in where the author speaks of the country becoming rich when we attain this per capita income mark, which would be a futuristic truism. He is less sanguine than other economists on poverty and argues that irrespective of the gauge used on this factor, India has a large number of poor. Here he uses the human development index to prove the point.

Now, often this index is countered as being biased, but a walk along the streets of our metro cities shows that poverty is quite rampant and a serious issue. He focuses on two major issues that we need to address in a big way, which are education and health. This is where the country needs to do more in order to become rich, as there is not much being done, especially at the lower end of the income scale.

This gets linked then to the issue of employment, where he is quite critical of the country’s performance. The author wades through the data as well as approaches of the government survey called the ‘periodic labour force survey’ and that brought out by the CMIE. The conclusions of both the surveys are dissimilar with supporters on each side calling the other optimistic or pessimistic. But any which way, the proof would finally be in how this pyramid of employment evolves over time to support growth.

This is where education comes in, as mere enrolments to the employee’s provident fund could be misleading if the income earned is low due to low skilled jobs being pursued. In fact, he is quite frank while questioning the quality of the large number of engineering and business administration schools and institutes that have mushroomed but are unable to create professionals who can be readily absorbed in the higher end of jobs.

His answer to the question on whether manufacturing is a way out for creating jobs and pushing growth is that it would definitely help. There are several areas he points out that provide a plethora of opportunities, which can be leveraged. These include electronics and pharma, which he says are the rising stars. He is quite dismissive of the PLI scheme as it involves a subsidy to industry. Instead, getting more electronic chip manufacturers, for instance, into the country as a long-term policy will help to reduce cost of inputs for Indian manufacturers. Hence what is important is a more favourable policy framework to prop up manufacturing output and not be restricted to subsidies, which can work only to an extent.

The book’s various chapters highlight issues that would be integral to the process of becoming rich while becoming developed. An area that is probably of concern all across the globe is disruption caused by pandemics and climate change. This is something that is serious as it can set back the growth process. This can have an impact on agricultural production, which is already visible when it comes to changing season patterns, especially the monsoons.

The other area of worry would be AI. Is it good or bad for a country like ours? Universally it is accepted that we will live with AI in every sphere of our life given the investment that is being made in all countries. The problem for us is that India is a labour-surplus economy and unbridled use of AI and machine learning can have an impact on employment. At a different level, the author points out to the strike in Hollywood when the use of Gen AI became widespread. Are these impact points exaggerated or real? The author pitches in the affirmative and feels that on the whole we will benefit from Gen AI research. But inequality and unemployment can get worse.

Datta in this book points to several areas that need to be addressed by the government as we embark on this long journey. Given that it is still two decades away, there is plenty of time to have a strategy in place. But clearly there is need to start work immediately and cover as much as possible to realise this dream.

Will India Get Rich Before It Turns 100? A Reality Check

Prosenjit Datta

Aleph Book Company

Pp 138, Rs 499

What's driving up gold prices? Business Line 22nd March 2025

 

Can the Indian economy count on manufacturing as an engine to growth? Mint 20th March 2025

 https://www.livemint.com/opinion/online-views/madan-sabnavis-indian-economy-manufacturing-engine-of-growth-gdp-viksit-bharat-demand-supply-make-in-india-pli-scheme-11742296020429.html

Global Economic Disruption: Top 10 Consequences Of Trump’s Tariff Policies And 'America First' Doctrine: Free Press Journal 15th March 2025

 

Ever since Donald Trump took over as president of the USA, there has been considerable disruption across markets. With different statements and deadlines being announced periodically, it becomes difficult to conjecture the future. There are at least 10 major consequences that can be visualised for 2025.

First, the higher tariffs announced along with the reciprocal tariffs being spoken of with major economies like the EU, UK, India, China, Mexico and Canada, among others, would mean that there will be disruption in trade at the general level.

Exports to the USA would come under pressure due to this factor. As already seen, there have been retaliatory tariffs announced by some of these countries, which, if not curbed, can lead to an all-out trade war where all countries pursue such policies, not just the USA but others too.

Second, at the micro level, industries within countries which are dependent on exports to the USA would have to rework their strategies, as this could mean lower demand for their products going ahead. Therefore, profitability concerns would be there, which will also get reflected in the stock prices depending on the intensity of the same.

Third, export-oriented economies would witness a severe blow if there is a major slowdown, and this holds for China for certain, which is heavily dependent on exports. This has the potential to slow down global growth too. It may be too early to put a number to the same, but any significant barrier to foreign trade will retard the GDP growth.

Fourth, the outcome of higher tariffs being imposed by the USA raises the possibility of countries like China getting more aggressive in terms of pushing their exports to other markets. This would mean that the threat of dumping cannot be ruled out, which has to be monitored by the commerce ministry.

It was seen in the past, too, that China did resort to dumping (a phenomenon where goods are sold lower than cost price in other countries to capture markets). This is something which can be a major pushback to both domestic and exporting industries.

Fifth, domestic industry would feel the heat on two counts. First, if countries agree with the USA to lower tariffs to avoid the reciprocal tariffs, there would be serious implications for domestic players who will face competition.

Second, as mentioned earlier, any dumping from the third country will have the same impact of posing competition for domestic industry. Dumping, it should be remembered, is not easy to prove, and hence, until a firm policy is in place to check such practices, domestic industry will encounter uncertainty.

Sixth, a positive consequence of all these actions on tariffs is that it has also engendered new interest in countries beginning to talk to one another to negotiate trade deals. This can be seen with the recent talks India had with the UK and EU. In a way, such dialogues can lead to more bilateral or group-level trade agreements, which is good for global trade. There is, hence, a possibility of a new wave of such deals, which can, in a way, revive trade negotiations which virtually ended post the redundancy of the WTO as an institution.

Seventh, the USA has been critical of the spending of the USAID and virtually closed down funding to over 80% of schemes. While this would be big savings for the government, this will lead to a lot of distress in the least developed countries, especially in Africa, which are completely dependent on the USAID for health support.

Given the high levels of poverty and rather corrupt governments, the USAID was the only support received by these nations. This will be a concern for the future of these economies. In fact, post the economic altercation with the EU, several countries like France, Germany, etc., are also scaling back on such disbursements. This is not a good sign for sure.

Eight, the constant talk of tariffs and making America great again has had a sharp impact on the currency, with the dollar getting stronger. This has meant that all global currencies have weakened, which has caused considerable volatility. India has also felt the tremors with constant intervention by the RBI to quell this excess volatility.

This, in turn, has affected liquidity, as any sale of dollars in the market results in liquidity being drawn out. To counter this development, it has become expedient for the RBI to boost liquidity through inducing measures consistently. On the positive side, the price of gold has gone up as investors are preferring the metal as a safe haven.

Nine, on account of the triad of policies – higher tariffs, lower taxation and evicting illegal immigrants, the Federal Reserve has been on guard and could go slow on lowering interest rates. The dilemma is that while there is fear of inflation, if rates are cut at a rapid rate (4 cuts were spoken of before the elections), the possible slowdown in the economy can cause a quandary for the central bank where a rate cut may have to be expedited. Further, the US president has been more than vocal on having more rate cuts.

Last, the result of the Make America Great Again doctrine being backed by a stronger dollar and possibly higher Fed rates for long has caused investors to flock back to the USA. This means that emerging markets are now less preferred, as they are also the exporting countries, which can face headwinds on account of the tariffs. This has sent FPIs out of these markets, and India has already witnessed negative equity flows this year. The ultimate impact has been felt on the stock market, where there have been significant corrections in the benchmark indices.

 

Hence, the trauma caused by the Trump administration has been all-encompassing, leaving virtually no major economy out of the repercussions, whether perceived or real.

 

Beyond the scoreboard: Gully Gully a cricket travelouge of world cup journey: Financial Express 9th March 2024

 The World Cup played in 2023 was quite an anti-climax where India lost the finals after putting on a perfect show till the last match. How best can one recollect all these endeavours? Aditya Iyer in his book Gully Gully provides a first-hand view of all the matches India played in the tournament, starting with the game against Australia in Chennai and ending with the same team in Ahmedabad.

The book could have been just a description of the scoreboard till the match ended, but Iyer has a style that is quite unique. He has written the book like a travelogue that combines his escapades in various locations where he has covered the matches. There is hence more of travel than cricket in a way, which makes the book very readable. For example, a match between India and the Netherlands cannot be expected to be exciting, though all the underdogs have their moment of pride in such encounters. But when the game is stitched with the travel part, the output becomes quite exhilarating.

Iyer has done well in terms of the narrative. There is first a picture of the city or town involved. This can be the hustle of Chennai or the hotspots for food and beverage in Bengaluru or the serenity of Dharamshala. Certain iconic cafes or spots also find mention, which can be revelations as the author takes the reader along on his journey.

After making the reader savour the flavours of the city, the author then makes us meet with a person associated with the sport. The interview could be with a player or even the wife of a cricketer who is a well-known face on TV. There are also stories of cricketers who may not have played much for the national team but were in the squad, and very proud of this achievement. Small-town boys aspire to make it to the national level, and in case they have not made it to the top, they are disappointed but still savour that they are considered to play for the nation.

In the course of the narrative, Iyer also takes us to the stadium and brings it alive for the reader. His descriptions of the stadiums in Ahmedabad or Chennai are especially vivid. He even takes satirical digs of the huge cutouts and photos of politicians in various stadia, conveying the message that politics also finds it way in sports and one can never be free of it. He touches briefly on the controversy of certain cities being omitted from the tournament ostensibly due to opposition governments being in power.

There are narrations of press interviews with captains and coaches that are interesting and we get to know the personalities of Rahul Dravid and Rohit Sharma well.The book ends with the finals, which has been written so eloquently that the reader almost visualises the match as it is played, as well as feeling the silence as Travis Head blasts his way to victory.

There were no cheers for the Australians, as the audience had exited the stadium before the match ended, and the high point for them appeared to be the presence of the distinguished prime minister. The fireworks bought to celebrate an Indian victory remained unused. Iyer ends the book in a poetic way, when he sees a father and son light some fireworks outside his hotel. The duo explain that since these were anyway bought and would have no use in future, it made sense to just light the stuff.

Gully Gully is a brilliant book for cricket lovers, written with style and gay abandon. The book also gives a glimpse of India and not just cricket. Gully is a fielding position in cricket. Gully is also a name for the little lanes, especially in places like Mumbai, where children and adults play cricket hoping that someday they make it to the Indian team.

Gully Gully: Travels Around India during the 2023 World Cup

Aditya Iyer

Penguin Random House

Pp 344, Rs 499

Has Trump done what WTO couldn’t? Financial Express 7th March 2025

 Idiosyncrasy and vicissitude stamp Donald Trump as exceptional. He has been erratic in articulation but consistent in his stance on economic policy, whether the world likes it or not. His recent tirade on customs tariffs is something that has got all nations back to the negotiation table. But, if one reflects, it will appear that his proposed actions would do something that the World Trade Organization (WTO) was unable to accomplish. Will this be a turning point in foreign trade?

The US is the largest importer of goods at around $3.3 trillion, followed by China ($2.6 trillion) and Germany ($1.5 trillion). The next in the top 10 are the Netherlands, UK, France, Japan, India, Hong Kong, and South Korea. These nations have considerable power over imposing tariffs, given the quantum of imports. The US threat to impose reciprocal tariffs on all trading partners may not be feasible, as it imports from almost 180 countries. Besides, the number of products is large, and it would be hard to map commodity- and country-wise tariffs for comparison. While the threat has been on matching tariffs based on commodities, it could practically be applied in generalised terms only. In this context, the average customs tariffs imposed by countries could be looked at, though this may not necessarily match the average that the US faces due to several free trade agreements between countries, including the most favoured nation (MFN) status.

The weighted mean average tariff on commodities imported is relevant here. World Bank data for 2022 throws some light on these rates, which vary from almost nil in Singapore to 29.5% in Bermuda. For India, it was 11.5%, while it was 8.6% in Korea, 7.4% in Brazil, 4.7% in South Africa, 3.1% in China, 3.1% in UK, 1.3% in France and Germany, and 1.5% in the US. These are averages and would have a varied set, depending on the commodities that are imported.

The outcome of the reciprocal tariff policy approach of the US has led to two things. The first is that it has opened the doors for negotiation, and this has meant that countries are talking to the US.

The second fallout is that countries have resumed talking to one another on trade issues. This was abandoned once the WTO concept fizzled out. What this will mean is that more agreements will be forged by like-minded nations on trade, which can be either bilateral or within groups of countries where the MFN-like status would be incorporated. India is already in talks with the UK and the European Union, which too are significant trade partners. The impetus for this will be more on the fear of the US raising its antenna at some point to tax goods from countries that have higher tariffs than it does (currently the number is nearly 100). Over 60 have an average rate of 5% or more.

The US trade policy has become the fulcrum for world economy as the concept of reciprocal tariffs has caught on. It is not certain whether these would be applied across the board. The higher tariffs on steel and aluminium are real and signal to the world that the US means business. Also, given that most of the exporting countries to the US have higher tariffs, non-compliance may not matter if there are no fewer cheaper substitutes. This can hold good in industries like pharmaceutical, where the US has to import because it is a necessity. Even in case of steel and aluminium, the US has to continue importing as it lacks production capabilities within. It will lead to higher prices and inflation in the US and could affect imports only marginally.

It has also been noticed that when tariffs are imposed on specific countries, there is a tendency to reroute goods through a third country. This helps dodge the higher tariffs. Often countries in the Gulf Cooperation Council are used for such routing. However, countries will deliberate whether rates should be rationalised keeping this factor in mind. It can lead to a reduction in tariffs on several product lines, which would be good for global trade, but this would also come in the way of domestic industry, which will see competition increase substantially.

For Indian companies, any reduction or rationalisation in tariffs would mean the doors are open wider for imports, which can affect competition. Therefore, the inherent protection that existed due to tariffs being at relatively higher levels would be withdrawn over time, becoming a major concern for the countries as well as individual industries.

At the policy level, there is always the threat of dumping where lowering of tariffs in general can lead to predatory trade. Other nations may under-price and sell their goods. A good example is China. India has had to apply anti-dumping duties to stem the flow of such goods. Surveillance would have to be increased to watch out for such practices.

The US double-speak is evident as the talk is only on goods and not services, where ambivalence persists. There is stern talk about driving migrants back, with some moves being made already. This will be a concern, given that there will be restrictions on issuing work-related visas. But then, this is the might of the US where the President is calling the shots and has changed the entire discourse of economics, with all countries revisiting their trade and tariff structures. Hence, it can be said that Trump has done what the WTO couldn’t.

Interest Rates Have Definitely Peaked In This Cycle: March 1, 2025

 

Interest Rates Have Definitely Peaked In This Cycle

The repo rate was reduced by 25 bps in the Feb policy, and it is expected there could be two more cuts during the course of the year, though the timing will have to be aligned with the inflation scenarios.

The minutes of the monetary policy committee indicate that there is a majority view that policy, henceforth, will target growth. This means that there will be a tendency for interest rates to come down even further over time. The repo rate was reduced by 25 bps in the Feb policy, and it is expected there could be two more cuts during the course of the year, though the timing will have to be aligned with the inflation scenarios. It has been assumed that inflation will keep trending downwards, and a normal monsoon would be the norm this year too. More importantly, core inflation has been low and stable, which has given more confidence to the committee to take this stance.

But an interesting observation is that post the policy announcement, there have been few moves by banks to lower the deposit rate as well as the MCLR (marginal cost lending rate). The EBLR (external benchmark lending rate), which holds for individual loans as well as those to MSMEs, should ideally have come down by 25 bps. However, this has not necessarily been the case, and several banks have chosen not to do so and increased the mark-up or spread over the repo rate. From the point of view of borrowers, rates have remained virtually unchanged.

The main issue is deposit rates. Banks have already been challenged all through the year in terms of garnering deposits. The relatively better returns in the capital market have caused some migration of savings to mutual funds. Those with higher risk appetites have invested directly in equities. This being the case, banks would be reluctant to lower deposit rates lest households move further away from deposits. This is the puzzle for bankers where liquidity is an issue. The present situation is characterised as one where growth in credit is steady, but the same cannot be said about deposits. The RBI has been using various techniques to infuse liquidity into the system, including VRR (variable rate repos), open market operations (OMO), and forex swaps. Deposits growth is the crux. If they do not grow, then it is hard for banks to lower their deposit rates.

This has affected the MCLR, which is calculated using a formula based on the marginal cost of funds. If the deposit rate does not come down, the average cost of deposits would remain unchanged, in which case the MCLR remains unchanged. This is why few banks have changed their MCLR.

This would be a thought for the Monetary Policy Committee going forward. While there seems to be some ideological consensus on further lowering the repo rate, the transmission would be in the hands of the banks. In fact, it can be said that in case there was stable liquidity in the system, the rate cut would have been translated to deposits and lending rates. The issue in banking is that when the repo rate changes, all loans are to be repriced at a lower or higher rate. However, in the case of deposits, it is only incremental deposits that get re-priced and hence banks do tend to face pressure on margins in a declining interest rate regime. Transmission of policy rates has always been an issue flagged by the RBI even when there was an upward cycle in the repo rate. The RBI had commented that transmission was still not complete and, hence, the stance was unchanged at ‘withdrawal of accommodation’ in successive policies.

In fact, in retrospect, it can be argued that the repo rate cut could have come after the liquidity situation was stabilised in the system. March is a crucial month for banks. There is the last instalment of advance tax payments made by companies, which will peak by the 15^th of the month. Then there are the GST payments which flow post the 20th. And last, the credit growth tends to increase towards the end of the month as banks set about meeting their targets.

Therefore, banks may not be too keen to lower their deposit rates at this point in time. Further, to the extent individuals are following the old tax scheme of taking advantage of exemptions, there would be a year-end rush to save in instruments such as PPF. All this would put some pressure on growth in bank deposits. Any which way, there will be pressure on both deposits and credit. In such a situation, there would be several interventions from the RBI to stabilise liquidity in the normal course of activity.

From the point of view of individuals, however, it can be assumed that interest rates have peaked and there would be few possibilities of banks raising deposit rates. The exceptions could be in certain tenure brackets where banks need to rebalance their portfolio. This could, hence, be the best time to book fixed deposits with banks, depending on the appetite of individuals.

The signalling on lending is also in a single direction. Rates would tend to move southwards in the coming months. As most loans are on floating rates, there would be benefits along the way even though the MCLRs may not have been altered presently. This may not happen immediately and will work through over the next couple of quarters. At any rate, the degree of reduction in bank rates (deposit and lending rates) tends to be lower than that of the repo rate. Therefore, even a 75 bps cut in the repo rate this year would probably lower the deposit rates by around 30-40 bps.

The present ideology of lowering the repo rate is based on an economic theory which says that as interest rates come down, people borrow more to consume more or invest more, which in turn leads to higher growth. The government has already worked its way through the budget to provide an impetus to both consumption (by cutting taxes for individuals) and investment (through higher capex). Monetary policy will now be supporting this effort through the next set of rate cuts.