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Business Standard
4 days ago
- Business
- Business Standard
US tariff hike could pressure India's economy and banks, says CreditSights
India and the US have held five rounds of trade negotiations, with the sixth round scheduled later this month in India Rahul Goreja New Delhi Tariffs imposed by United States (US) President Donald Trump could weaken India's economic outlook, with pressure on key export industries likely to spill over into the banking sector, according to Fitch-owned research firm CreditSights, as reported by The Economic Times. Context Last week, the Trump administration announced an additional 25 per cent duty on Indian exports involving the import of Russian oil, effective August 27. This follows a prior 25 per cent tariff on Indian imports, raising the total duty to 50 per cent. Brazil is the only other country facing a similar tariff under the new US measures. Limited direct exposure, but sectoral pain ahead CreditSights noted that India's direct export exposure to the US is limited—about 2 per cent of gross domestic product—suggesting the broader impact could be 'manageable' due to the economy's reliance on domestic consumption and capital investment. However, several export-dependent sectors could come under pressure due to their reliance on the US market. These include: Textiles Jewellery Apparel Seafood Machinery and mechanical appliances Chemicals Auto components Banking sector implications The report also cited CreditSights' analysis (as of June 2025), which found Indian banks' exposure to these sectors to be under 10 per cent, indicating limited direct risk. However, banks could still face 'second-order' impacts, such as: A rise in credit costs, even if asset quality remains stable A likely slowdown in corporate loan demand, which was already subdued in Q1FY26 A possible decline in investor sentiment towards future investments These developments could weigh on credit growth and bank earnings, the firm said, as quoted by The Economic Times. Policy response in the works A trade pact between the two countries could help reduce the duties. India and the US have held five rounds of trade negotiations, with the sixth round scheduled later this month in India. Additionally, the commerce and industry ministry has firmed up support schemes worth approximately ₹25,000 crore under the Export Promotion Mission for a six-year period, according to a recent Business Standard report. The proposal has been submitted to the finance ministry for approval. Once cleared, the schemes will be rolled out after Cabinet approval, two people aware of the matter said.
Economic Times
5 days ago
- Business
- Economic Times
Trump tariff blow set to ripple through India's economy and banks: Fitch's CreditSights
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads India's economy is bracing for a hit after the US announced it will double tariffs on Indian exports, a move that could push growth down and leave several key industries facing serious strain, according to Fitch-owned CreditSights . While the direct export exposure to the US is modest, the higher trade barriers are expected to ripple through sectors where America is a dominant market, and banks could also see an indirect drag on credit Trump administration last Wednesday imposed an additional 25% tariff on Indian exports to the US, in retaliation for New Delhi's continued imports of Russian crude oil. This new measure will come into force on August 27 and will push the overall tariff rate to 50%, as it is added on top of an existing 25% levy. CreditSights said this would make India subject to the highest US tariff rate currently in effect, a position shared only with described the overall blow to the economy as 'manageable' given that exports to the US make up roughly 2% of India's GDP, and that domestic private consumption and capital investment remain the main growth drivers. It cited BMI, its sister company, which is projecting GDP growth of 6.0% in FY26 and 5.6% in FY27 under the present 25% tariff rate. If the full 50% rate takes effect, BMI expects GDP growth to fall by a further 0.2 percentage points in FY26 and 0.4 percentage points in FY27. The research firm also said there is still a possibility of negotiations that could bring the tariff rate down, noting that other countries have seen such outcomes in the a prolonged 50% tariff regime could inflict severe damage on industries heavily dependent on US demand. CreditSights highlighted textiles, jewellery, apparel, seafood, machinery and mechanical appliances, chemicals, and auto components as sectors likely to face significant headwinds. In each of these areas, the US is the largest export market for Indian producers, and the higher duties could erode competitiveness and squeeze Indian banks, the direct risk from these sectors appears limited. CreditSights' analysis of financial data as of June 30, 2025, shows that the combined outstanding fund-based and non-fund-based exposure of the banks under its coverage to these industries is below 10% of total exposure. Furthermore, some of the most exposed product categories — such as auto parts, seafood, and machinery and mechanical appliances — are sub-segments of broader categories like vehicles, food, and engineering, where the banks' exposure is more the impact on banks may be felt more through what CreditSights called 'second order' effects. The firm expects credit costs to rise, even if asset quality remains broadly manageable. It warned that the bigger issue could be a slowdown in corporate loan demand, which was already weak in the first quarter of FY26, and a dent in investor sentiment towards future investments in India. Both trends could restrain credit growth and weigh on banks' earnings less than two weeks before the higher tariffs are set to take effect, the potential for last-minute talks offers some hope to exporters and investors. But if the measures stand, sectors with deep reliance on US buyers will need to navigate a difficult adjustment, and banks may find themselves grappling with a slower pipeline of new lending, even as the broader economy continues to lean on domestic consumption and investment to drive growth.
Business Times
27-06-2025
- Business
- Business Times
India oil law revamp unlikely to draw foreign drillers amid red tape and weak incentives
[SINGAPORE] India's first rewrite of its 77-year-old oilfield rules kicked in on Apr 15, with New Delhi hoping it'll help turn around a decade of sluggish output and and ease its growing reliance on imported crude, which stands at over 85 per cent. But analysts say there's still too much red tape in a system that seems to favour local players, making it tough for foreign drillers to break in. Currently, international players form less than 10 per cent of India's total oil and gas (O&G) production, noted CreditSights' South and South-east Asia corporates team. 'Foreign participation in India's upstream O&G sector remains low due to restrictive legacy regulatory procedures and poor economic incentives,' the team told The Business Times. That's why the calibrated changes under the Oilfields (Regulation and Development) Amendment Act, 2025 are unlikely to move the needle on foreign investment, say industry watchers. Limited overseas interest has long weighed on India's output, and the gap matters more than ever now as the country scrambles to boost upstream capacity to meet surging energy demand. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Heavy reliance on imports CreditSights' analysts noted that India reportedly consumes about five million barrels of oil per day, while domestic production of crude oil stands at only around 0.6 million barrels per day, underscoring the country's O&G import dependence. India's reliance on imported crude has become a pressing concern, prompting calls for law amendments. The country's import dependency rose to 88.2 per cent in the period from April 2024 to February 2025, from 87.7 per cent in the corresponding period a year ago, based on data from its oil ministry's petroleum planning and analysis cell. After the lower house in India's Parliament approved the amendment Bill on Mar 12, paving the way for it to become law, Petroleum and Natural Gas Minister Hardeep Singh Puri highlighted the country's rising energy consumption needs: 'Today, we are consuming 5.5 million barrels a day of crude oil… If we continue to grow at the rate at which we are, we will go up to 6.5 million to seven million barrels a day. 'India's transformation to become a developed nation will require a large amount of energy in all forms. Steps have been taken to enhance India's energy exploration and production.' For years, India's upstream output has dwindled, contracting at an average annual rate of 1.1 per cent over the past decade, according to S&P Global Commodity Insights. This decline is largely attributed to the natural depletion of mature fields operated by state-run entities, persistent delays in monetising existing discoveries, and a notable scarcity of new finds, noted the team. Compounding these challenges, international interest in India's exploration bidding rounds has largely remained elusive, with restrictive legacy regulatory procedures and poor economic incentives deterring overseas players. Law reforms The new amendments to the Oilfields Act – the principal legislation governing the exploration and development of mineral oil resources in India since 1948 – seek to address these long-standing concerns of exploration companies, with the explicit objective of fostering a more investor-friendly environment, said S&P Global Commodity Insights' analysts. CreditSights team highlighted these key features of the amendments: Empowering the central government to grant licenses for oilfield exploration through notification/bidding/other methods, as opposed to direct application by foreign players in the past; Further streamlining and digitising of approval processes; Improving transparency and legal clarity of the upstream regulatory framework; Introducing a structured penalty system. One of the core changes is the dissociation of petroleum operations from mining operations. By eliminating the long-standing practice of grouping petroleum and mining operations under the same regulatory framework, the law change aims to avoid past confusion that often resulted in the delay of petroleum exploration operations due to the need to obtain irrelevant permits and licences. Investment risks John Zadkovich, partner at Stephenson Harwood, said permitting remains one of the biggest hurdles for upstream players in India, particularly given the capital-intensive nature of the exploration and production sector. 'I've seen projects stymied for six to 10 years because of permitting challenges. So, unless the Indian government has resolved that, it is going to continue to be a problem in attracting investment,' he said. Zadkovich added that upstream projects usually require initial capital of tens, if not hundreds, of millions of dollars, leading to long gestation periods with inherent investment risks. 'If they do get a permitting challenge early in the place, that is gonna be a long time to have an asset setup without development or exploration.' Lengthy legal processes CreditSights' team noted that the introduction of a structured penalty framework will help reduce uncertainty over dispute resolution – a key area of concern for international players. 'We think the new oilfield regulation helps establish a transparent legal framework to reduce ambiguity and operational frictions, which should bolster foreign investor confidence in India's upstream sector,' said the team. However, Stephenson Harwood's Zadkovich noted that legal clarity alone does little to address procedural bottlenecks caused by a shortage of judicial officers. 'It's almost a joke among lawyers that if you kick something into the court system there, it can be 10 to 15 years before you get a judgment. That's not a reflection on the competence of the judiciary but on the shortage of judicial officers and huge backlog. 'It's one thing to streamline the law from a procedural perspective, but if it ends up in the courts or in a tribunal, it can be 10 years for some parties,' he added. Ian Hiscock, director of boutique energy consultancy MMC, said that foreign investors in the sector have 'got burned in the past', so they will be cautious despite the Indian government's consistent efforts to deregulate. Similarly, CreditSights' team noted that the amendments would not bring in a substantial increase in foreign participation in the near term. Despite improving legal and operational clarity, the amendment does not introduce sweeping reforms or explicitly attract new investment into the sector, the research team said. This is on top of execution risks, such as a failure to reduce bureaucratic red tape and inconsistent enforcement across states. More importantly, the government may ultimately have an innate preference towards its domestic O&G companies, given energy security concerns, said the analysts. Current landscape India's upstream O&G sector is dominated by national players (public sector undertakings, or PSUs), namely Oil India and Oil and Natural Gas Corporation. The competitive landscape poses resistance to new entrants, making strategic partnerships more important for foreign players. Zadkovich noted: 'The energy players I've worked with are incredibly astute, well-connected and typically well-backed. So some of the majors there will protect their positions, and I think there'll be a bit of resistance to newcomers.' He highlighted that to navigate the resource-intensive regulatory regime, newcomers will have to be 'very strategic with whom they partner with'. Creditsights' team noted that the PSUs have shed some market share to the Indian private companies over the years, including Reliance Industries, Cairn India (an entity under metals giant Vedanta), and Hindustan Oil Exploration. 'Foreign participation is mainly through joint ventures, production sharing contracts, or minority stakes in specific blocks,' said the team. Some of the major international players in India are BP, TotalEnergies, Shell, ENI, and ExxonMobil.
