Jefferies: India Adopts ‘Hope, Prepare’ Strategy

India is gearing up for potential US tariffs with a strategic mix of economic reforms and cautious optimism, according to a recent Jefferies report. Following discussions with senior bureaucrats, the brokerage noted that the government is adopting a “hope for the best, prepare for the worst” approach to looming trade challenges. Despite uncertainties, India’s robust economic fundamentals are expected to cushion the impact, with a focus on domestic growth and targeted support for key sectors.

The government is pushing for Goods and Services Tax (GST) rationalisation, aiming to simplify tax slabs and reduce rates on goods like cement, two-wheelers, four-wheelers, and air conditioners. This reform, nearing completion after over a year of planning, is designed to boost consumption without straining fiscal resources. Jefferies predicts lower tax evasion and increased economic activity, benefiting industries and consumers alike.

To counter tariff risks, India is rolling out credit guarantee schemes reminiscent of COVID-era measures to bolster employment-heavy sectors like electronics, fertilisers, and rare earths. These initiatives aim to enhance production and reduce reliance on imports, strengthening India’s self-reliance goals. The government’s proactive stance includes a fresh wave of reforms, with visible progress expected in 2025. Key efforts include the Jan Vishwas 2.0 Bill, which decriminalises 288 commercial offences, a rewritten direct tax code, and amendments to the Insolvency and Bankruptcy Code. Privatisation, including the planned IDBI Bank divestment by March 2026, is also gaining momentum.

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Despite concerns over nominal GDP growth, Jefferies highlights that the government remains confident, buoyed by a strong monsoon boosting rural demand and supportive monetary policies. The Reserve Bank of India’s flexibility to cut interest rates, combined with lower income and GST rates, is expected to drive broad-based growth. While India navigates complex US trade relations and gradual normalisation with China, its focus on reforms and domestic resilience positions it to weather global trade headwinds effectively.

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