JUST a few months ago, United States President Mr. Donald Trump was in a rage against India when his tariff threat was turning hollow against New Delhi’s silent resilience. The Trump administration was taking potshots at its top Asian partner in a bid to cower India into signing a heavily skewed trade deal. The President had termed the Indian economy as “dead” along with a few other countries that stood up against his bullying. The silent resilience shown by India has now forced a ‘change of mind’ in the United States and Mr. Trump is now citing India’s growth to pressure the US Federal Reserve to remove its inhibitions. The wheel has come full circle for Mr. Trump. But, as is his wont, it would not take much time to make a volte-face at the first hint of pressure from India. But then again, Mr. Trump has talked about a reality that the world is witnessing for the last few years.

 

India is, indeed, one of the fastest-growing major economies in the world despite global headwinds and geopolitical tensions. Post the coronavirus pandemic, India has been the leader in economic recovery with development-centric policies and fiscal support to domestic industries. It has helped India to maintain its growth rate in the bracket of 6 per cent to 8 per cent consistently. Despite the reverses caused by the Russia-Ukraine war and major disruption in supply chains due to the blockade of the Strait of Hormuz during the West Asia crisis, the Indian economy has shown great strength to absorb these shocks.

 

The Trump administration is aware of the fine show put up by India and the POTUS is now using the Indian example while arguing that the United States should also pursue significantly higher growth without being held back by concerns over inflation and interest rates. Mr. Trump has been vocal against the conservative stance by the US Fed as it is not in the mood to cut interest rates fearing the risk of weak economic momentum. The Fed is concerned about the inflation which Mr. Trump sees as an opportunity to stimulate growth. From the economic point of view, the President’s stand is extremely risky as the US economy has already suffered a lot due to high tariffs on countries and war burden on the exchequer. If the US Fed goes for a rate cut then, economists fear, higher spending might take inflation up in quick time. However, Mr. Trump is highly critical of the Federal Reserve policymakers. He sees stronger growth as a good thing for inflation. The jury will be out soon on Mr. Trump’s economic views and it will be a new challenge for the Fed chair to justify its cautious stance to the Americans.

 

While Mr. Trump has rightly cited India’s economic growth as a pointer for the US Fed to lower interest rates, he might have missed the pragmatic stance adopted by the Monetary Policy Committee of the Reserve Bank of India (RBI) over the last few years. The RBI is still not too bullish about the growth projection in India despite the rate climbing up. Multiple factors are responsible for the RBI’s conservative outlook. It is well aware of the looming threat of inflation in case of a weak monsoon and poor agriculture output in the next quarters. In fact, inflation has remained at the centre of RBI’s decisions on repo rate cut. The cuts came only after inflation was brought under a comfortable band. Since then, it has refused to get swayed by the greenshoots and maintained a status quo. Mr. Trump is missing the woods for the trees.