Trump actions will cause India’s GDP growth to slow down along with global economy: Swaminathan Aiyar

Swaminathan Aiyar, Consulting Editor, ET Now, says India is hardly on India’s radar. He is taking on Russia, China, Mexico and India hardly matters in this totality. The main problem for India is not going to be the bilateral relationship. Even if the US puts some tariffs on India, it will make a great difference to us. What is going to make a big difference is that there is already a huge uncertainty in markets of all businesses, and nobody knows how to plan ahead. This is causing world GDP to slow down and India's GDP will slow down along with; world trade will slow down, India's trade will slow down. In the global trade war that is going on, the global geopolitical thing that is changing, everybody is going to be holding off on investment and many people will hold off on consumption. There may or may not be a recession, things are definitely going to go downward.

What are we looking at for equity markets because someone was saying that US bond markets are already pricing in a recession. It may be a knee-jerk reaction, but for equity as an asset class and globally, what are we staring at?
Swaminathan Aiyar: You are staring at a severe fall. Mind you, that is an extremely bold prediction to make given the state of the froth in the market right now. But the American stock market is a bubble waiting to burst and it is entirely plausible to me that Trump is going to burst that bubble. There have been comparisons between countries. You can have comparisons of valuations on various metrics. One of them is the price to book cyclically adjusted. A short time ago, in one of the analyses I read that the US’ price to book was the highest in the world at 5.2. India came next at 4.9. Third was Japan all the way down at 1.8, Britain at 1.6. China at 1.3, Korea at 1.0, Hong Kong at 0.8.

So, that gives you an idea that the USA is so far ahead of the others in terms of valuation. Is there not a chance of not just a small but a disastrous fall? To me, this has now become plausible. Markets have momentum. Once panic sets in, a bubble can burst very badly instead of just a gradual release of the gas. So, as I said, because of what Trump is doing and because of the things that may happen, let us see what happens. Again, it is possible that the moment Mr Trump sees that some of the stuff is causing such panic on the markets, will he then begin to pull back? It is very difficult to know what this man is going to go for. As of now, it looks as though he is out to smash everybody in sight and boast to the Americans, I have smashed them all in order to make America great again. If that does not happen, if it does not seem that America is getting great again, I wonder what the reaction will be. We will have to wait and see.

How will India manoeuvre through these troubled tariff times? We did not hear a whole lot from the prime minister's US visit. Now, we hear that Piyush Goyal is on his way to the US and maybe some tariff talks are going to be in place. What role will India play?
Swaminathan Aiyar: Very little because India is hardly on the radar screen. This guy is taking on Russia, China, Mexico, these big guys. India hardly matters in this totality. If you look at the critical American exports, India is not a very big market and exporting more to India is not a very big deal. Nor is India a very big market exporter to the USA compared with various other people. So, the idea that you can do a free trade deal is not possible because within a free trade deal, America will bring in things like labour standards, environmental standards, various other issues, which I do not think India will be able to agree to.

So, if it is only on trade and there is some adjustment of tariffs on both sides, that then becomes a small matter and India will be able to ride it over. I keep saying the main problem for India is not going to be the bilateral relationship. Even suppose you put some tariffs on India and I do not think that will make a great difference to us.

What is going to make a big difference is that we have already seen huge uncertainty in markets of all businesses, but nobody knows how to plan ahead. This is causing world GDP to slow down and India's GDP will slow down along with; world trade will slow down, India's trade will slow down. And in this particular trade, the global kind of trade war that is going on, the global geopolitical thing that is changing, everybody is going to be holding off on investment and very many people will hold off on consumption.

I can see global GDP falling. There are some people who are saying there could be a recession. Well, maybe, maybe not, I do not say that for certain, but I would definitely say everybody is now extremely worried and that we are going to go downhill, maybe slowly, maybe a bubble burst, nobody can be sure of that. But I definitely think that things are going to go downward.

Like you said, the GDP growth globally could slow down. We back home also expecting our GDP to slow down quite a bit what we had expected earlier as well? But given the way the global scenario is taking shape day after day, Indian markets are bearing the brunt of that as well. Should we brace for some more of an impact or a harder impact going ahead?
Swaminathan Aiyar: No, all I can say is that India is some distance from the real war – both the geopolitical and the trade war. India is some distance away. So, as a person who is not directly involved in this enormous thing that is going on, we should be watching from the sidelines and adjusting as we can.

There is no major initiative of any kind. Modi's idea is that India will be a peacemaker. Trump does not give a damn for India to come in. He just says, I am going to settle it with Putin. So, there is no role for India that the Americans are interested in giving in this particular thing. As far as I can see, India should be waiting on the sidelines. Fortunately, we have a resilient economy. We have done pretty well even in the Great Recession of 2008 or 2009, we were able to see ourselves. India is a strong and resilient economy. Even if there is a very major meltdown elsewhere, we will be able to hold ourselves up better than other people, but that is just a small mercy. Some people thought that the Indian markets are big and we are going to take off and go sky high, I am afraid not. I am afraid dark days are ahead of us.