US President Donald Trump's imposition of 50 per cent tariffs on Indian goods would be short-lived as the "current approach will not be a long-term positive thing in terms of the overall relationship" between the two countries, Chief Economic Advisor (CEA) V Anantha Nageswaran said.
Mr Nageswaran also warned that the 25 per cent tariff imposed over the purchase of Russian oil will make businesses extremely challenging and the adverse effects of this move are likely to be felt in the second and third quarters of the financial year. He expressed concerns that the impact of the tariffs could spill over to the next financial year if the situation did not change.
The CEA's remarks came amid ongoing tensions between India and the US over the latter's imposition of 50 per cent tariffs on Indian goods. On August 27, a 25% tariff was imposed on India over its purchase of Russian oil. This was in addition to the 25% duty that came into effect on August 7 in India along with 70 other nations.
"I do feel that it (high tariff) will be more short-lived than long-lived," Mr Nageswaran told The Indian Express.
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There are signs that the US has realised that a higher tariff on India will probably not yield the desired results and is proving to be counterproductive, he said. "If you ask me for concrete evidence beyond what I am seeing in the last few days in terms of mixed messaging, I don't have a concrete basis to give you an answer as to why I think the second 25 per cent will not last long, but it will be more short-lived than long-lived," he said.
There would be "certain recalibration happening from the other side", he added.
With Washington singling out New Delhi for the Russian oil imports, India is attracting the highest US tariff of 50 per cent along with Brazil. Both Russia and China, among others, have slammed Mr Trump for exerting illegal trade pressure on India.
Mr Nageswaran, however, said the recent reduction in the Goods And Service Tax (GST) rates is expected to boost consumption in the country. "The question is whether it will be of a magnitude that will compensate for the export losses, is a different matter of calculations, but it will definitely offset and compensate for that," he said.
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On Wednesday, the GST Council approved a complete overhaul of India's tax consumption tax by limiting slabs to 5 per cent and 18 per cent, as the Centre sought to boost domestic spending and cushion the economic blow of the US tariffs on Indian goods.
"This year, you must understand that in the first four months, up to August, exports have happened without the tariff. So the impact (of the additional 25 per cent tariff) this year will be in the second half of the financial year. Estimates vary about the tariff-exempt and tariff-affected sectors," Mr Nageswara said.
"You can do your calculations, but unfortunately you have to make multiple assumptions about second-and third-round effects on uncertainty, capital formation, and employment. I think there will be an impact on the Gross Domestic Product (GDP) growth in the second and the third quarters, assuming that the situation continues," he added.
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The CEA cautioned that the impact of the tariffs could spill over to the next year if the situation remained unchanged. "So the fiscal second and third quarters will be critical, but I hope by then the second 25 per cent (tariff) would 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. Difficult to give you precise numbers," he said.
He said India's search for other markets for its exports will not be an easy task. "In that sense, it does raise the dependence on domestic levers of growth that much more. So that is a formidable task on hand for us," the top economist said.
