India vows to avoid protectionist signals on trade, says top official

India does not want to give any signal that it is protectionist, the top bureaucrat in the finance ministry said, after slashing import duties on high-end motorcycles, amid US President Donald Trump’s moves on tariffs.

Sunday’s remarks came a day after Trump ignited a trade war with sweeping tariffs on Canada, Mexico and China. None were aimed at India, although Trump had called it a tariff abuser during his election campaign last year.

“We don’t want to give anybody any signal that we would like to be protectionist,” Finance Secretary Tuhin Kanta Pandey told Reuters in an interview after the budget, unveiled on Saturday.

“Our stance is that we don’t want to increase protection.”

Trade and immigration issues will take centrestage when Prime Minister Narendra Modi meets this month with Trump, whose administration India has sought to placate after his accusations that its tariffs hurt prospects for American firms.

India’s budget cut import tariff slabs, reducing average basic customs duties on scores of items such as raw materials for domestic industries like textiles and automobiles, Pandey added.

Average import tariffs on essential goods, mainly items of food and raw material, range from zero to 5 per cent, while those on capital goods range from 7.5pc to 10pc, with about 10 items in higher tax categories, he said.

Trade analysts were not convinced the cuts were sufficient, however. “India’s average tariffs are still much higher compared to the United States, Japan and China,” said Ajay Srivastava, founder of Global Trade Research Initiative, a think tank based in Delhi.

While India was slashing peak rates of basic customs duties used for international comparisons, it was adding various surcharges on imports, implying that the total tax burden remained high, he said.

Trump’s administration has upped the ante by recently raising the issue of undocumented Indians living in the United States, a topic on which India’s foreign ministry has said it is in dialogue with US authorities.

India slashed custom duties on motorcycles, such as those from Harley-Davidson, with engine capacity of 1,600 cc or more, to 30pc from 50pc on fully-built imports in the budget, which Pandey said also cut average tariffs to 11pc from 13pc.

“We should give the right signal for the world, as well as to our own industry,” Pandey added, saying the tariff measures aimed at helping domestic companies initially but would be phased out as those industries developed.

India’s rating upgrade a challenge as debt woes trump fiscal prudence, says Fitch

Despite the Indian government’s efforts to consolidate its fiscal position, a sovereign rating upgrade appears challenging due to concerns over high public debt and interest payments, an analyst at Fitch Ratings said in an interview on Monday.

“India’s debt-to-GDP ratio is just above 80pc on a general government basis, well above the high-50pc range that we see for similar-rated peer countries,” said Jeremy Zook, director of Asia sovereign ratings.

“Those are more structural fiscal factors that are still a constraint for a rating upgrade.” In August, Fitch affirmed India’s long-term foreign currency issuer rating at ‘BBB-’ with a stable outlook, citing a strong medium-term growth outlook.

A rating upgrade is important as it can lower borrowing costs, attract foreign investment and boost economic credibility.

As it moves away from targeting fiscal deficit, the government aims to lower its debt-to-GDP ratio to around 50pc by March 2031.

While that is broadly achievable, there are many lingering issues that could act as hurdles, Zook said.

“If robust economic activity does not prove to be durable, that could put more pressure on the fiscal side. In case, nominal (GDP) growth slips into single digits, achieving that target could become difficult.” Zook said India has the space to trim expenditures slightly to still meet the fiscal deficit target, which is set at 4.4pc of GDP for the fiscal year starting in April.

The country’s interest-to-revenue ratio, currently at 25pc, is also “a big constraint” to an upgrade, Zook said.

“The median for this ratio in the BBB category is about 8pc and India is quite a negative outlier in that regard,” he said.

Zook said a continued focus on investment, partially through capex, and on boosting private sector investment is quite important for India to sustain its strong growth rates in the long term.

The ratings agency continues to expect India to grow by 6.4pc this fiscal year and by 6.5pc next fiscal year.

India central bank’s FX forward book climbed to near 4-year high on rupee angst

The Indian central bank’s defence of the rupee, necessitated by worries over US trade polices and sluggish domestic growth, pushed the size of its forex forward book to the highest in nearly four years in December.

The Reserve Bank of India’s (RBI) aggregate negative position in FX forwards and futures hit $68 billion in December, per data released on Friday.

A negative forward book indicates the RBI has sold dollars in the forward market.

The last time its forward book was this big, whether positive or negative, was in March 2021, according to Reuters’ calculations.

The central bank has the biggest negative forward book, in absolute terms, in Asia, per BofA Securities.

The RBI buys or sells dollars in the FX forward market when it does not want its spot intervention to affect domestic liquidity and/or to maintain headline forex reserves.

India’s headline forex reserves are down $75bn at nearly $560bn, adjusted for the forward book. The country’s reserves hit a record $629.5bn in September.

The RBI’s forward book for the October-December quarter rose by nearly $54bn amid a persistent decline in the rupee.

The currency, which has been under stress for the last few months, dropped to yet another record low on Monday. It slid 0.7pc to 87.28 to the US dollar, in the wake of the dollar’s rally after US President Donald Trump slapped tariffs on Canada, Mexico and China.

The spectre of US tariffs has been wearing down the rupee and other Asian currencies since Trump won the election last November.

India’s sluggish growth, which has pushed foreign investors to take out money from domestic equities, has worsened the rupee’s plight.

The RBI’s forward book likely expanded further in January, according to analysts and traders.

The central bank regularly sold dollars in the spot market last month, a portion of which it shifted to the forward market via buy/sell dollar-rupee swaps to limit the impact on domestic liquidity.