“We are currently operating with an assumption that there may not be 10% universal tariffs coming in quickly because that will require legislative changes. In our base case, we assume that US will probably impose tariffs only on China and take up some bilateral issues with other big trade partners, like Europe and Mexico,” he told CNBC-TV18.
In 2018-19, the growth impact was one percentage point for the whole region. However, Ahya explained that much of the economic strain in 2018-19 was due to a sharp decline in global corporate confidence and trade rather than direct tariff impacts.
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“Now everybody is aware about the issues between US and China, corporations have already taken up the effort to diversify. So, this time, the downside could be more manageable than what we saw in 2018-19,” he noted.
He expects cumulative tariffs on China to gradually rise to 60%.
Implications for Interest Rates and Asian Currencies
According to Ahya, US fiscal expansion policies are likely to be delayed until 2026, as they would require congressional approval.
“In terms of sequencing, it could be tariffs first and then fiscal policy in 2026,” he noted, adding that this will allow the US Federal Reserve to proceed with its planned rate cuts.
Ahya expects two rate cuts from the Reserve Bank of India (RBI) starting in February, with the possibility of further rate actions depending on how tariffs impact broader Asian growth.
India’s Capex and Consumption Recovery
He attributes much of the economic downturn in India to a decline in government spending, which makes up around 29% of the GDP.
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If the government meets its capital expenditure targets, spending could rise by around 50%. Even if this target isn’t fully met, an increase of 30–40% is likely in the second half of the year, which would help support economic recovery.
Recent data from auto and FMCG companies, he noted, indicates improving rural consumption, suggesting that consumer spending may pick up in the latter half of the financial year, led by government-driven capex.
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