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India's potential trade deal with the US may take time, but it is more likely to happen in the next few months, and it could help India gain a share in the US market. However, a report by Morgan Stanley says elevated tariffs between the US and China may impact global growth and global trade.
"We assume that India and US will be able to conclude and implement a bilateral deal over the next few months. However, to the extent tariffs between US and China remain at elevated levels, global growth and trade are likely to take a hit." said the report The report noted that risks from global capital flows or volatility in currency may make it more challenging for policy makers to address the growth risks. However, if the US strikes a deal with China on time it could improve the global growth trajectory, said the report. "On the upside, resolving the uncertainty caused by changes in tariff policies if the US were to strike a deal with China in a timely manner could improve the growth trajectory." said the report The Morgan Stanley report has lowered India's growth by 40bps to 6.1 per cent in FY2026, due to the impact of uncertainty in global trade. However, it says the export demand impact on India will be low as compared to other Asian economies. India's exports of goods are approximately 12 per cent of GDP, one of the lowest levels amongst Asian economies. Further, goods exports to the US are approximately 2.1 per cent of GDP, while exports excluding pharma and energy are 1.7 per cent of GDP - the lowest amongst Asian economies. The report, however, noted that even as the direct trade exposure for India is low, the second-order impact may happen because of slower global growth and a dent in business confidence weighs on the capex cycle and consequently consumption. The ratio of exports to GDP is at 21 per cent, the external demand and production cycles move in tandem; thus, slower exports weigh on capacity utilisation and the capex cycle. Slower global growth also leads to lower global commodity prices, as seen in the recent decline in oil prices, which is positive for India as it imports over 80 per cent of its oil demand. The report also cautions the impact of uncertainty and slower global growth on capital flows in India. It says "Such an environment of global uncertainty can impede capital flows, with both FII and FDI flows adversely affected." In view of all these factors, the report has reduced India's growth forecast to 6.1 per cent in FY2026 to recover to 6.3 per cent in FY 2027. (ANI)
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