India's finance ministry has said that trade relations with the United States are currently strained because of the passage of the Lindsey Graham Bill through the US Congress and the presidential approval of the same, as per the Monthy Economic Report published on Thursday.
The bill empowers the US president to impose tariffs of up to 100 per cent on countries that purchase Russian crude oil, with India and China being among them.
The report comes at a time when the world economy is reeling under the effects of the US-Iran war, with oil prices having spiked in September. On the other hand, global bonds yeilds are higher, and will be spilling over into India's domestic bond yields. It also says that cross-border capital flow will slow down as higher interest rates will persuade investors to continue remain invested in domestic markets as global uncertainty rises.t
"Sustained high quality, consistent and reasonably swift decision-making will reassure investors. More importantly, India must work on ensuring that the economy is more competition-friendly rather than business-friendly. Only a competitive economy will become a successful, innovative, and manufacturing economy. Improved governance and enhanced state capacity at all levels of the government hold the key to a competitive Indian economy," the report said.
It also highlighted that India's growth momentum has held on amid the heightened global uncertainties. "The escalation of tensions in West Asia disrupted energy markets and trade routes, adding to uncertainty in an already uneven global economy. Domestic activity, nevertheless, remained firm, supported by strong domestic consumption and sustained investment," it said.
Retail inflation rose to 4.82% in August, while food inflation stood at 5.95%. Wholesale inflation accelerated to 9.92%, driven in part by renewed fuel and power price pressures.
India's external sector remained resilient, supported by services exports, remittances, forex reserves and capital inflows, the report said. Foreign-exchange reserves stood at $765.9 billion as of Sept. 18, providing import cover of about 11.1 months.
AI bubble burst inevitable: Report
The finance ministry report also says that the AI bubble has not yet begun its inevitable meaningful deflation, which is driving capital investment and capital flows out of the country.
It says that developing countries, like India, are racing to secure investments to finance their manufacturing aspirations at a time when global supply chains are being weaponised. "Thus, India, as do other developing nations, faces a stiff challenge to attract capital flows," the report states.
