Paul Gruenwald, global chief economist at S&P Global Ratings, was in India last week. In an interaction with TOI, he spoke on a range of issues from the state of the US economy, the impact of tariffs on the global economy to India’s strong economic growth. Excerpts: How do you look at global economy, given so much uncertainty?Back in April, we were very much focused on tariffs and downside risk to growth. It turns out that the tariff effects were not as bad as we thought. The narrative has really shifted over the last six months or so. Now, we’re talking about upside risks from data centres and a capex boom. We definitely still have some policy uncertainty overhang in the US that spills over to the rest of the world. But, the main macro story is a bit better than it was even a couple of months ago.Did economists overestimate the impact of US tariffs?The overestimation was due to three things. We were initially expecting higher tariff rates. The initial rates announced by President Trump were much higher than the final rates. Those came down. The effective tariff rate in the US ended up at about 17%. That was as high as 30% at some point. Number two is there has been very little retaliation. It looks like most countries basically accepted this as a cost of doing business with the US. With the exception of China, which matched the US tit-for-tat the first time. We recently got a 12 month extension between President Trump and President Xi, we haven’t really seen the retaliation. There have been quite a number of exemptions. Even though the effective statutory tariff rate is about 17%, the actual tariffs collected by the US so far are closer to 10% effective tariff rate. Most of those so far are being borne by companies, wholesalers, retailers, importers, in terms of margin compression rather than passing them on to consumers. The impact hasn’t been as large as we thought. We haven’t seen any widespread re-location or re-shoring of manufacturing to the US. It was basically a tax of the US on its own people on imports. It’s being shared between businesses and households. We’re estimating it’s going to be roughly half and half between businesses and consumers on the final incidence. But that pass through has been a bit slower than we thought.How do you look at the Indian economy?India and Brazil are the two economies that have large tariffs that haven’t been resolved yet. I’m hearing that there might be an agreement sometime soon, which would take the uncertainty away from India. The US is seen as a less reliable partner than it was before. A lot of countries are kind of hedging their bets and diversifying their trade and their investment exposure, India included. India has an advantage that it’s a relatively closed economy and it’s not that dependent on the US but I think this is a global trend and part of the move away from this Washington consensus. We don’t know exactly where that’s going to land, but a number of countries, including India, are taking a hard look at their international relations and managing their risks appropriately.How are investors looking at India?India’s the fastest growing major emerging market. It’s fair to say the growth baton passed from China to India a few years ago. India has a lot of tailwinds. There is a runway for long and sustained growth. If India can keep up that trajectory due to compounding, we’ve got a reasonably bright future ahead. A trajectory of 6.5% for India for multiple years is going to be quite respectable. China did a lot of its growth through capital deepening rather than productivity. You can argue that that didn’t go particularly well. If India can put together a strong growth of 6% to 7%, there is nothing to be ashamed of. That’s quite a good result.
