This report is from this week’s CNBC’s “Inside India” publication which brings you well timed, insightful information and market commentary on the rising powerhouse. Subscribe right here.
The massive story
Whereas temperatures are beneath freezing level at Davos, geopolitical tensions have been on the boil as U.S. President Donald Trump’s pursuit of Greenland has thrown transatlantic relations in disarray.
As Europe seems to face as much as Trump, it’s searching for newer commerce alliances with its focus now on partnering with the world’s quickest rising giant economic system — India.
European Fee President Ursula von der Leyen mentioned on the World Financial Discussion board in Davos on Tuesday that the European Union was on the “cusp of a historic commerce settlement” with New Delhi. “We’re selecting truthful commerce over tariffs. Partnership over isolation. Sustainability over exploitation,” she mentioned.
European Fee President Ursula von der Leyen (L) speaks with India’s Prime Minister Narendra Modi earlier than their assembly on the Hyderabad Home in New Delhi on February 28, 2025. The European Union is exploring a safety and defence partnership with India, EU chief Ursula von der Leyen mentioned on February 28 earlier than assembly with Prime Minister Narendra Modi in New Delhi. (Photograph by Cash SHARMA / AFP) (Photograph by MONEY SHARMA/AFP by way of Getty Pictures)
Cash Sharma | Afp | Getty Pictures
For New Delhi, which has been dealing with the brunt of punitive U.S. tariffs, this may very well be a much-needed shot within the arm. Since Trump imposed 50% tariffs on the Asian economic system in August final yr, it has been taking a look at alternate markets for its exports and has entered into commerce offers with a number of nations.
“India’s openness to commerce agreements predates Trump 2.0, however we’ve seen offers speed up as nations look to develop collectively in an unsure world setting,” mentioned Richard M. Rossow, senior adviser and chair on India and Rising Asia Economics on the Heart for Strategic and Worldwide Research.
Over the previous few months, India has introduced commerce offers with UK, Oman, and New Zealand. On Monday, UAE and India vowed to double commerce to over $200 billion by 2032, with New Delhi additionally signing a $3 billion LNG procurement cope with the Center Japanese nation.
India might be hoping that the European Fee president’s go to to New Delhi on Jan. 25-27 ends with an announcement of a commerce deal, because the nation strives to spice up its exports and make up for the decline in shipments to the U.S. Specialists informed CNBC that announcement of a deal throughout the go to is kind of seemingly.
However additionally they say that an India-EU commerce pact, dubbed by some because the “mom of all offers” — a characterization von der Leyen highlighted in her speech on the WEF — won’t change U.S. as India’s No.1 export vacation spot.
Shock absorber?
“The EU deal is now central to India’s exterior financial technique exactly as a result of there isn’t any commerce cope with the U.S,” mentioned Arpit Chaturvedi, advisor with Teneo’s geopolitical danger advisory workforce.
It offers India an “different anchor within the West” and restores some bargaining leverage to strike a cope with the U.S, he added.
In keeping with European Fee knowledge, items commerce between India and the EU in 2024 was over 120 billion euros (about $140 billion), making it India’s largest buying and selling accomplice. Equipment and home equipment, chemical compounds, base metals, mineral merchandise and textiles are New Delhi prime exports to the bloc.
Radhika Rao, senior economist DBS Financial institution Singapore, mentioned a commerce settlement with the EU may not embody delicate segments like metal, auto, and agriculture, which can be lined individually.
EU nations’ commerce with India is almost on par with New Delhi’s items commerce with the US and China.
However headline commerce numbers don’t mirror the fact of India’s dependency on the U.S. market: In 2024, India’s items commerce surplus with the U.S. was $45.8 billion, whereas for EU it was considerably decrease at $25.8 billion.
India’s complete exports to 6 main EU markets — Netherlands, Germany, Italy, Spain, France and Belgium — was $43.8 billion within the 9-month ending December in comparison with $65.88 billion for the U.S. alone.
Given the scale of its exports to the U.S., most offers New Delhi is making are “partial shock absorbers,” not a treatment for the lack of commerce with the U.S., mentioned Chaturvedi from Teneo.
“The India-EU settlement can partially mitigate the U.S. tariff affect on exports,” mentioned Vishrut Rana, senior economist at S&P World Rankings, however added that the a commerce cope with U.S. stays key for India’s economic system.
The elusive deal
A deal between India and the U.S. has been a piece in progress for a very long time. Earlier this month, U.S. Commerce Secretary Howard Lutnick on a podcast mentioned that India may have been the second nation to get a deal after the U.Ok., which signed an settlement with Washington in Could.
“I set the deal up. However Modi needed to name President Trump. They have been uncomfortable with it, so Modi did not name,” Lutnick mentioned. The Indian aspect has known as these feedback “inaccurate.”
Following Lutnick’s remarks, Sergio Gor, who took cost on Jan. 12 because the U.S. ambassador to India, mentioned that finalizing a commerce cope with a big nation like India was “not a simple process,” however the U.S. was “decided to get there.”
Absence of a deal has additional pressured the Indian rupee amid volatility in exports to the U.S. Exports dropped 1.8% in December, after leaping 22.6% within the prior month. The rupee is buying and selling at 91.56 per greenback, with enchancment hinging on a commerce cope with the U.S.
Whereas the “mom of all offers” is a vital one for New Delhi, it is unlikely to be giant sufficient to protect the nation from the adversarial impacts of U.S. tariffs within the absence of commerce pact.
“The lack of the U.S. market can by no means be compensated by EU even after the FTA,” mentioned Ajay Srivastava, founding father of New Delhi-based assume tank World Commerce Analysis Initiative.
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Michael Wan of MUFG Financial institution mentioned continued outflows from international institutional buyers and repatriation of international direct investments into India from personal fairness gamers are the the reason why he expects the rupee to underperform in 2026 relative to different nations.
Amish Shah, head of India analysis at BofA Securities, particulars his outlook for Indian markets within the coming yr, including that the dearth of fiscal room for stimulus measures within the union finances for monetary yr 2027 may result in a market sell-off.
Must know
India and UAE plan to double bilateral commerce. India plans to extend commerce with UAE to $200 billion by 2032. State-owned corporations of the 2 nations signed a 10-year liquefied pure fuel provide settlement price $3 billion.
Progress slows down for Reliance Retail in December quarter. The third largest vertical of India’s largest conglomerate, Reliance Industries, reported slower development, main analysts to scale back earnings estimates and lower inventory goal value, at the same time as they preserve a purchase ranking on Reliance shares.
India’s exports to China soar in December. Exports to China surged 67% in December to $2 billion, in distinction to items shipped to the U.S. — New Delhi’s largest export market — that dropped 1.8% to $6.8 billion.
Quote of the week
India, as China was 15 years in the past, has loads of development forward. It is rising 7.5% per yr. It is the fourth largest economic system now … I feel we should always not underestimate India. And I feel the Indian story is simply beginning.
— Fabricio Bloisi, CEO, Prosus
Within the markets
As of two.20 p.m. native time, the Nifty 50 and the BSE Sensex have been about 0.1% increased. Each the indexes have had a poor begin to the yr, with the Nifty down 3.53%, and the Sensex 3.8% decrease yr so far.
The benchmark 10-year Indian authorities bond yield slipped for a 3rd straight day, and was final at 6.638%.
The rupee additionally weakened to a different document low in opposition to the greenback on Thursday, hitting 91.64 in opposition to the dollar.
— Lim Hui Jie
Developing
Jan. 23: HSBC India manufacturing, companies flash PMI
Jan. 25-27: President of the European Council, António Luís Santos da Costa, and the President of the European Fee Ursula von der Leyen to go to India
Every weekday, CNBC’s “Inside India” information present offers you information and market commentary on the rising powerhouse companies, and the folks behind its rise. Livestream the present on YouTube and catch highlights right here.
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