Tariff cut to open door wider for exports, lift rupee, fund inflows: Nirmala Sitharaman

New Delhi: The US slashing tariffs on goods is a “very big development” for India’s exporters and will have a positive impact on the rupee and boost fund flows into India, finance minister Nirmala Sitharaman said. India already contributes significantly to global growth and the tariff cut puts India at a different level altogether, Sitharaman said in a postbudget interview with ET in her chamber at the parliamentary house.

“I would think these are the winds of change, which (investors) are noticing. Big-time investors normally see the weathervane, which direction is it,” Sitharaman said in response to a question on muted foreign portfolio flows and the depreciating rupee. “That there is a positive movement towards India in terms of reduction in the rate of the tariff, it signals that the relationship is on an uptick and that can certainly influence decision-making of equity and fund flows into India.”

Also Read: High contribution to global growth draws India to the centre stage: Nirmala Sitharaman


India’s benchmark stock indices surged over 2.5% on Tuesday, while the rupee rallied 1.36% up, its highest level since January 14, following the US tariff move. The FM said the 18% tariff offered to India, down from 50%, is comparable with that available to the country’s competition. Sitharaman said there are clear signs private sector investment is picking up in sectors that have a support in the form of production-linked incentive (PLIs) programmes as well as strategic missions.

“There will be opportunities opening up because export possibilities have become of big magnitude,” she said, pointing to the trade deal with the US. The higher securities transactions tax (STT) announced in the budget, which spooked the stock market on Sunday, was aimed at curbing speculation. “I'm using it not for revenue. Plain and simple, addressing the issue, which many people expressed to us. Parents, elders, all saying this is becoming a big thing,” she said.

The finance minister said she’s hopeful the levy will work as a deterrent. Sitharaman dismissed the suggestion that the tax holiday till 2047 to foreign companies that provide cloud services to customers globally using data centres in India discriminated against domestic investors. “No, it doesn't skew. If they (Indian data centre companies) are global companies themselves and they have businesses outside, they also have a business here,” she said.

She said departments have to be faster to a question on the execution of budget proposals. “Even with the preparation of the budget, they were all very keen to come and meet and give inputs and insist on how viable their projects are and so on,” she said. “So, I guess that enthusiasm will continue.” The finance minister agreed that despite the country’s macroeconomic fundamentals being strong, foreign fund flows had been muted. “There are other, probably strategic reasons which are also influencing decision making,” she said. “That is why, despite the economy doing well, fastest growing, why all of us were talking about why investments are not coming here.”

She did not elaborate on what these strategic reasons could be. The finance minister said the budget followed a two-pronged strategy to spur manufacturing — scalable, big, and replicable, supported by PLI, and second by creating MSME champions.