(India File is published every Tuesday. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.) February 24 - By Ira Dugal, Editor Financial News, with global Reuters staff
India’s trade equation with Washington has shifted again after the U.S. Supreme Court struck down Donald Trump’s tariffs last week. The ruling offers New Delhi a breather, but also leaves it facing fresh uncertainty.
Is India in a better position now to negotiate a trade pact more favourable to it? Write to me at ira.dugal@thomsonreuters.com.
And, the central bank’s tighter rules for bank financing to proprietary traders and brokers open up a new front in the regulatory battle against India’s booming but sometimes unwieldy derivatives market. Scroll down for more on that.
<h3>THIS WEEK IN ASIA</h3>
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North Korea’s Kim says country to develop economy over next 5 years
Afghanistan’s ruling Taliban says Pakistan strikes kill, injure dozens
China’s DeepSeek trained AI model on Nvidia’s best chip despite US ban, official says
<h3>BRIEF REPRIEVE, OR A RESET?</h3>
India’s trade ties with Washington have seen several dramatic turns - from early hopes of a quick deal, to a near-50% peak tariff, to a pact lowering duties to 18% in return for reduced Russian oil imports, only for the calculus to be upended by the U.S. Supreme Court ruling.
The court’s decision to deem a large swathe of Trump’s tariffs as unconstitutional was followed by the U.S. president’s move to impose a 15% tariff rate, but that still leaves India in a better position than it was earlier, economists reckon.
Mumbai-based brokerage Emkay Global calculates India’s effective tariff rate to now be between 11% to 13%, which it says is in line with Asian peers and lower than that of China.
Brazil, China and India will see the biggest declines in trade-weighted tariffs.
Market reaction to last week’s developments has been one of caution.
The NSE Nifty 50 (.NSEI) rose 0.5% on Monday, while the Indian rupee was marginally higher.
So far, the negative impact of high U.S. levies on Indian goods has been modest. Exports to the U.S. between September, when tariffs were raised to near 50%, and January, fell by 6.1% on-year, according to data from IDFC First Bank.
But the U.S. court’s decision is causing uncertainty on whether India will proceed with the recently agreed-upon deal in its current form, under which tariffs on a wide variety of imports into India are being slashed.
Talks scheduled for this week between representatives of the two countries have been put on hold for now after India delayed sending a trade delegation to Washington, Reuters reported over the weekend. U.S. trade officials, however, said no countries have indicated plans to withdraw from trade deals so far.
Meanwhile, Trump warned in social media posts on Monday that countries that “play games” will face higher tariffs.
While Trump’s ability to threaten and impose tariffs has been weakened by the court ruling, uncertainty for trade partners and companies remains, Reuters journalist Andrea Shalal wrote in this analysis.
“It (Supreme Court ruling) does not eliminate the policy unpredictability in Trump 2.0,” DBS economists wrote in a note on Monday.
<h3>SHIFTING BALANCE ON OIL TRADE</h3>
Analysts are also watching to see if India would now have greater flexibility in choosing where it purchases oil from.
While New Delhi has not commented on Trump’s assertion that India will stop oil purchases from Russia, data already shows a sharp drop.
Russia’s share of India’s oil imports in January fell to the lowest since late 2022, Reuters’ Nidhi Verma reported, while Middle Eastern supplies rose. Read here for that data.
India has also been in talks with the U.S. for purchase of Venezuelan oil and Reliance Industries (RELI.NS) has bagged a licence that will allow the refiner to import oil from the South American nation directly.
The discount on Russia’s flagship Urals oil blend to global benchmark Brent crude, meantime, is at its steepest since 2022, which could be beneficial for India which has maintained that its energy purchases are dictated by commercial considerations.
India is unlikely to return to its previous stance on Russian oil purchases or backtrack on key terms of the U.S. trade deal framework, Bernstein analysts wrote in a note.
“There are plenty of sections at his (Trump’s) disposal - many of which allow country-specific measures,” they said.
<h3>MARKET MATTERS</h3>
India’s central bank’s new rules that prohibit banks from lending for proprietary trading and require 100% collateral for other funding to brokers could cut profit margins in half for large high-frequency trading firms.
This, in turn, could lead to a drop of up to a fifth in derivative trading volumes, Reuters reported.
Read that story here.
The Reserve Bank of India’s rules are being seen by analysts as part of a concerted effort to curb the country’s booming equity options market, which has attracted retail investors even though many of them have faced losses in these trades.
So far, markets regulator Securities and Exchange Board of India has reduced the number of options contracts available for trade and raised the costs associated with such trades, while the government has raised transaction taxes.
The crackdown may have further to go, Reuters Breakingviews columnist Shritama Bose wrote.
<h3>THIS WEEK’S MUST-READ</h3>
Global private equity investors are chasing investment opportunities in Indian cricket.
From KKR (KKR.N) to Blackstone (BX.N) , investors are looking to buy into teams playing in the Indian Premier League, the world’s richest cricket league, Reuters’ Vibhuti Sharma reported.
Read here for more.
Options premium turnover on NSE holds up even as contracts fall on regulatory curbs
<img src="https://imageproxy.pbkrs.com/https://reut.rs/4aqCwi2?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" width="1420" height="650" original-src="https://imageproxy.pbkrs.com/https://reut.rs/4aqCwi2"/>
Tariff winners and losers by country
<img src="https://imageproxy.pbkrs.com/https://reut.rs/4qUJKzZ?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" width="1420" height="1198" original-src="https://imageproxy.pbkrs.com/https://reut.rs/4qUJKzZ"/>

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India's trade relationship with the U.S. has shifted following the Supreme Court's ruling against Trump's tariffs, providing New Delhi with a temporary reprieve but introducing new uncertainties. Economists suggest India's effective tariff rate is now between 11% to 13%, aligning it with Asian peers. However, recent developments have led to postponed trade talks between the two nations. Additionally, India's oil purchasing strategy may be more flexible, with a noted decrease in Russian oil imports. The Reserve Bank of India's new regulations could impact high-frequency trading firms significantly.

- India's trade relationship with Washington is shifting following the U.S. Supreme Court's recent overturning of Donald Trump's tariffs, creating new uncertainties for New Delhi.  
- The court's ruling has led to a reduced effective tariff rate for India, making it more competitive in Asia, although upcoming negotiations have been postponed amid concerns over trade agreements.  
- Additionally, new regulations imposed by the Reserve Bank of India could significantly impact the derivatives market, potentially reducing transaction volumes and affecting high-frequency trading profitability.

India File: Relief on US tariffs, for now