Resilience Amid Retaliation: Neelkanth Mishra Says India Can Withstand Global Tariff Shocks

Despite mounting global economic pressures, including aggressive fiscal tightening and sweeping US tariff measures, India’s economy remains resilient and well-positioned to navigate the turbulence, according to Neelkanth Mishra, Chief Economist at Axis Bank and member of the Prime Minister’s Economic Advisory Council. In recent remarks, Mishra outlined how India’s domestic demand, proactive monetary policy, and sectoral competitiveness are helping cushion the impact of external shocks.

His analysis comes in the wake of the Trump administration’s decision to impose new tariffs aimed at raising approximately 700 billion dollars annually, a move that could shave off 1.6 percent from global GDP. While the broader global economy may face headwinds, Mishra believes India’s structural reforms and targeted incentives are creating buffers that will help the country weather the storm.

Key Highlights From Mishra’s Economic Outlook

- US tariffs could reduce global GDP by 1.6 percent, with 0.6 percent from direct fiscal tightening and 1 percent from deferred investments  
- India’s electronics, apparel, and footwear sectors may benefit from tariff gaps with competing nations like Vietnam  
- The Reserve Bank of India’s liquidity support has strengthened domestic demand and reduced vulnerability  
- Financial markets and currency may face volatility, but macroeconomic fundamentals remain intact  
- India’s reform momentum could accelerate as global uncertainty forces strategic recalibration  

Impact Of US Tariffs And Global Fiscal Tightening

Mishra estimates that the new US tariff regime will function as a form of global fiscal tightening, with a significant portion of the burden falling on American consumers. Since domestic production of key goods like smartphones is unlikely to ramp up immediately, the tariffs will translate into higher prices and inflation within the US.

Globally, the uncertainty surrounding trade negotiations and retaliatory measures is expected to delay investment decisions, contributing to a 1 percent drag on GDP. Mishra cautioned that financial markets may experience stress and currency fluctuations as countries reassess trade risks and capital flows.

India’s Relative Insulation And Sectoral Opportunities

Despite the global disruption, Mishra emphasized that India is relatively insulated from the direct impact of US tariffs. The country’s export basket is less exposed to the affected categories, and its domestic consumption remains robust. The Reserve Bank of India’s proactive liquidity measures have eased constraints that previously slowed growth, allowing domestic demand to recover.

He also highlighted potential gains for India in sectors like apparel and footwear. With Vietnam facing higher tariffs, India’s lower production costs and tariff gap of nearly 20 percent could make it a more attractive sourcing destination for US buyers. This shift could enhance India’s competitiveness and support job creation in labor-intensive industries.

Financial Market Risks And Currency Volatility

While the real economy may remain stable, Mishra warned that financial markets could bear the brunt of global uncertainty. Foreign portfolio investors may reduce exposure to emerging markets, leading to capital outflows and currency swings. He urged market participants to prepare for heightened volatility and adapt to a more unpredictable global environment.

India’s equity markets, however, are expected to remain supported by domestic factors such as inflation trends, monsoon performance, and policy continuity. The RBI’s focus on internal stability will be key to managing external shocks.

Reform Acceleration And Strategic Realignment

Mishra views the current global uncertainty as an opportunity for India to accelerate structural reforms. He believes that tariff threats should be treated as negotiating tactics rather than permanent economic realities. By using this moment to push forward deregulation, infrastructure investment, and trade diversification, India can strengthen its long-term growth trajectory.

He also stressed the importance of strategic engagement with global partners to mitigate risks and explore new trade alignments. The evolving landscape may offer India a chance to reposition itself as a stable and competitive hub for manufacturing and services.

Looking Ahead

India’s resilience in the face of fiscal tightening and tariff disruptions reflects a maturing economy with diversified strengths. While challenges remain, Mishra’s outlook suggests that with prudent policy and strategic agility, India can not only withstand global shocks but also emerge stronger.

Sources: CNBC TV18, Moneycontrol, Swarajya Magazine.