New Delhi:

India may witness some economic hardships amid US President Donald Trump’s push for balancing bilateral trade with threats of reciprocal tariffs, warned Zoho founder Sridhar Vembu. He pointed out that amid Mr Trump’s threats, India will soon need to increase its imports from America to balance the bilateral trade, which could put pressure on New Delhi’s current account deficit unless domestic production ramps up quickly.

“As a slightly oversimplified mental model, India exports software services to America and imports consumer goods from China. The surplus with America is more than matched by the deficit with China,” Mr Vembu said in a pot on X.

“Now India will (have to) import more iPhones, GPUs, LPG, nuclear plants, fighter jets, whiskey and so on from America to balance the bilateral trade,” he added.

He noted that this adjustment could put pressure on India’s current account deficit unless domestic production is ramped up quickly.

“In order not to blow up the current account deficit, India has to find ways to reduce consumer goods imports from China, and that means increasing domestic production. Since this cannot happen overnight, in the short run imported consumer goods prices could go up – that shows up as inflation,” he said, adding that Indian manufacturers have to step up and set up capacity and “acquire the know-how when needed.”

As a slightly oversimplified mental model, India exports software services to America and imports consumer goods from China. The surplus with America is more than matched by the deficit with China.

Now India will (have to) import more iPhones, GPUs, LPG, nuclear plants, fighter…

— Sridhar Vembu (@svembu) February 15, 2025

India’s Trade With US And China

Since the Covid-19 pandemic, India’s trade surplus with the US has doubled, growing from $17.30 billion in 2019-20 to $35.33 billion in 2023-24, alongside a notable shift in the export basket. While exports of electronic and engineering goods surged, traditional exports such as gems, jewellery and garments remained largely unchanged.

At the same time, India’s trade deficit with China has hit $85.1 billion in the fiscal year 2024, with imports from Beijing witnessing a 9.8 per cent rise year-on-year between April and October 2024. China remains India’s top import source, with imports valued at $65.89 billion during that period.

The numbers underscore a growing economic concern, as exports to China fell to just $8 billion during this period.

Trump’s Threats

Mr Trump on Saturday warned that “America will charge a RECIPROCAL Tariff, meaning, whatever countries charge the United States of America, we will charge them- No more, no less!”

Earlier on Friday, highlighting the trade imbalance between Washington and New Delhi, the US President said that Indian tariffs as high as 70 per cent on American goods such as cars are a “big problem”. He pointed out that US sales of oil and gas will bridge the American trade deficit with India.

“India imposes a 30, 40, 60 and even 70 per cent tariff on so many goods, and in some cases, far more than that. As an example, a 70 per cent tariff on US cars going into India makes it pretty much impossible to sell those cars. Today, the US trade deficit with India is almost $100 billion, and Prime Minister Modi and I have agreed that we will be negotiating to address the long-running disparities,” he said at a press briefing with Prime Minister Narendra Modi.

“We want a certain level playing field, which we really think we’re entitled to, and he does also, in fairness. So we’re going to work on that very hard, and we can make up the difference very easily with the deficit, with the sale of oil and gas, LNG, of which we have more than anybody in the world,” Mr Trump added.

Food inflation during the month of January is mainly attributed to decline in inflation of vegetables and other items.
| Photo Credit: Sushil Kumar Verma

India’s retail inflation cooled to a five-month low of 4.31% in January from 5.22% in December 2024, with food prices rising 6%, compared with an 8.4% rise in the previous month, which also marked the slowest uptick since August 2024.

The price rise faced by urban consumers in January dropped sharply to 3.87% — below the central bank’s 4% median target for inflation. For rural consumers, inflation remained above the 4% mark at 4.64%, but this was still significantly lower than the December pace of 5.8%.

Food inflation trends also varied for urban and rural India, with cities reporting a 5.5% rise in prices, while rural areas still faced a higher inflation of 6.3%.

“The significant decline in headline inflation and food inflation during the month of January is mainly attributed to decline in inflation of Vegetables, Egg, Pulses & Products, Cereals and Products, Education, Clothing and Health,” the National Statistics Office said in a statement.

The five items that recorded the highest inflation in January were coconut oil (54.2%), potato (49.6%), coconut (38.7%), garlic (30.7%) and peas (30.2%).

On a month on month basis, the Consumer Price Index for January was 0.97% lower, while the Consumer Food Price Index (CFPI) had eased 2.9%.

 Among food items, cereals, pulses, wheat saw easing in inflation in December. Representational file image.
| Photo Credit: Sushil Kumar Verma

Wholesale price inflation rose to 2.37% in December 2024, led by spike in manufactured products even though prices of food items eased, government data released on Tuesday (January 14, 2025) showed.

The Wholesale Price Index (WPI) based inflation was 1.89% in November 2024. It was 0.86% in December 2023.

Also read | Decoding India’s growth slowdown

As per the data, inflation in food items eased to 8.47% in December 2024, as against 8.63% in November. Inflation in vegetable stood at 28.65%, as against 28.57% in November.

Inflation in potato continued to be high at 93.20%, and in onion it spiked to 16.81% in December.

Among food items, cereals, pulses, wheat saw easing in inflation in December.

The fuel and power category witnessed a deflation of 3.79% in December, against a deflation of 5.83% in November. In manufactured items, inflation was 2.14%, against 2% in November.

Retail inflation data released on Monday showed that consumer price index (CPI) based inflation eased to 4-month low of 5.22% in December on easing food prices.

Representational image of an aerial view of a footpath market in Bengaluru. Food price inflation decelerated to 8.9% in November 2024 from a 25-month high of 11.6% in October
| Photo Credit: Sudharaka Jain

India’s wholesale prices rose at a three-month low pace of 1.89% in November, easing from October’s 2.4% uptick, with food price inflation decelerating to 8.9% from a 25-month high of 11.6% in the previous month, even as manufactured products’ inflation accelerated to 2%.

Inflation in primary articles eased to 5.5% from 8.1% in October, while fuel and power remained in deflation zone, with prices falling 5.83% year-on-year.

On a sequential basis, the Wholesale Price Index (WPI) was down just 0.06%, led by a 1.2% fall in primary articles and a 0.45% decline in the Food Index. By contrast, fuel and power prices were up 1.2%, breaking a two-month streak of sequential declines, while manufactured products were 0.4% pricier than October.

EDITORIAL | Price worries: On inflation

Among manufactured products, some of the important groups that showed month-over-month increase in prices are food products, furniture, non-metallic mineral products, pharmaceuticals, medicinal chemical and botanical products and electrical equipment, the Commerce and Industry Ministry said.

Vegetable inflation that had soared over 63% in October, more than halved to 28.6%, but potato prices rose an alarming 82.8%, up from a little over 78% recorded in the previous two months. Onion inflation, which had halved from 78.8% in September to 39.25% in October, fell dramatically to a mere 2.85% in November.

The Ministry attributed November’s wholesale price inflation pace to the increase in prices of food articles, food products, other manufacturing, textiles, machinery and equipment.

Food products’ inflation hardened to 9.5% in November from 7.8% in the previous month, while edible oils and fats’ prices surged 28% from 20.2% in October. The price rise in fruits and pulses decelerated to 8.4% and 6%, respectively, but some other food items continued to see persistently higher inflation, including wheat (8.4%) and paddy (7.6%).

India’s city dwellers are cutting spending on everything from cookies to fast food as persistently high inflation squeezes middle class budgets, threatening the country’s brisk economic growth.

Slowing urban spending over the past three to four months has not only hurt the earnings of largest consumer goods firms, it has raised questions about the structural nature of India’s long-term economic success.

Also read | Meal costs are rising faster than earnings: Data

Since the end of the pandemic, India’s economic growth has been driven in large part by urban consumption, however, that now seems to be changing.

“There is a top end – the people with money are spending like that is going out of style,” Nestle India Chairman Suresh Narayanan said.

“There used to be a middle segment, which used to be the segment that most of us fast moving consumer goods (FMCG) firms used to operate in, which is the middle class of the country, that seems to be shrinking.”

Nestle India, which makes Kit Kats and other well-known goods, reported its first quarterly revenue drop since the COVID-hit June quarter in 2020.

While there is no officially defined income bracket for Indian middle class households, they are broadly estimated to account for a third of India’s 1.4 billion people. They are considered a key demographic both economically and politically, with middle class frustration seen as a significant factor behind Prime Minister Narendra Modi’s weaker election performance this year.

Asia’s third-largest economy is expected to expand 7.2% in the financial year ending March 2025, the fastest among its major peers.

Belying those rosy projections, however, are signs of a sharp slowdown in the household sector.

Indian urban consumption hit a two-year low this month, according to an index published by Citibank that captures indicators such as airline bookings, fuel sales and wages.

“While some of the fall could be temporary, the key macro drivers remain unfavourable,” Citi’s chief India economist Samiran Chakraborty said.

Growth in inflation-adjusted wage costs for listed Indian firms – a proxy for earnings of urban Indians – has remained below 2% for all the three quarters of 2024, well below the 10-year average of 4.4%, data from Citi showed. Chakraborty cites this as a key factor impacting urban consumption, along with declining savings and tighter rules for personal loans. Headline inflation has averaged 5% over the past 12 months, but food inflation has held above 8% as weather shocks elevated prices of vegetables, cereals and other essential foods. In October, retail inflation hit a 14-month high of 6.2% while food prices jumped to 10.9%.

Anecdotal data suggests retail sales rose close to 15% year-on-year during the 2024 festive season, which runs from August to November, Nomura said in a note last week, about half last year’s pace.

“During this festival season, we have not spent at all,” said Rajwanti Dahiya, 60, who survives on her husband’s monthly pension of 30,000 Indian rupees ($356.76).

“Savings are low, barely there.”

A ‘SHRINKING’ MIDDLE

India’s central bank expects 7.2% GDP growth for the fiscal year ending March 2025 on the back of improved rural demand and a strong services sector.

Higher government investment could also support demand, said Rahul Bajoria, head of India and ASEAN economic research at Bank of America.

“If government spending kicks in, that probably does have some multiplier effects on private consumption spending as well,” said Bajoria, who expects GDP growth at 6.8% in the current financial year.

Some are less optimistic with Citi and IDFC First Bank economists expecting GDP growth in the July-September quarter to miss the central bank’s projected 7%, weighed by slower urban consumption.

That pessimism has hit consumer stocks with the Nifty FMCG index declining 13% since Oct. 1, compared with a 7.4% drop in the benchmark Nifty 50.

Of the FMCG index’s 15 constituent firms, only one reported a pickup in sales volume growth in the September quarter.

Consumers in large cities are swapping branded items from hair oil to tea for cheaper unbranded alternatives, reflected in the first sales volume decline in 11 quarters for the foods and refreshment group at Hindustan Unilever.

“We see the growth in big city standing down, although in smaller cities and in rural the growth continues to be good,” Hindustan Unilever chief executive Rohit Jawa said last month, after reporting lower than expected earnings.

Consumers are also cutting back on dining out.

Fast-food chains such as McDonald’s, Burger King, Pizza Hut and KFC posted same-store sales declines, earnings showed.

While people are still coming, they are choosing cheaper meals, Rajeev Varman, CEO at Burger King operator Restaurant Brands Asia said after posting a 3% drop in quarterly same-store sales.

“We prefer budget-friendly stores that give good deals and discounts to manage our monthly expenditure,” said 37-year old Avinash Crasto, a Mumbai marketing and sales executive who has a family of four and identifies as middle class.

HUL, Godrej Consumer Products Ltd (GCPL), Marico, ITC, and Tata Consumer Products Ltd (TCPL) have expressed concerns over squeezing urban consumption. Representational file image.
| Photo Credit: M. Karunakaran

Leading FMCG companies reported a decline in margins in the September quarter on account of higher input costs and food inflation, which ultimately slowed down the pace of urban consumption.

Rising prices of commodity inputs such as palm oil, coffee and cocoa were also accentuated and some FMCG firms have hinted at a price hike.

Also read | Consumption choices shifting amid rural revival

HUL, Godrej Consumer Products Ltd (GCPL), Marico, ITC, and Tata Consumer Products Ltd (TCPL) have expressed concerns over squeezing urban consumption, which according to industry experts forms 65-68% of FMCG total sales.

“We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs,” said GCPL Managing Director and CEO Sudhir Sitapati in a Q2 earning statement.

GCPL, makers of Cinthol, Godrej No 1, HIT had a steady quarter given the headwinds of oil costs and tough consumer demand in India and its standalone EBITDA margin was lower, caused entirely by high inflation in palm oil.

The rural markets, which were earlier lagging behind, continued their growth journey ahead of urban. Besides, FMCG players reported growth from premium products and from sales through quick-commerce channels.

Another FMCG maker Dabur India also said the demand environment was challenging in the September quarter marked by “high food inflation and a resultant squeeze in urban demand.” The maker of Dabur Chyawanprash, PudinHara and Real juice reported a decline of 17.65% in its consolidated net profit to ₹417.52 crore and revenue from operations slipped 5.46% to ₹3,028.59 crore.

Recently, Nestle India Chairman & Managing Director Suresh Narayanan also raised concerns over decline and said “middle segment” is under pressure as high food inflation continues to cripple household budgets.

“It is extremely clear that the market is facing muted demand. The growth in F&B sector, which used to be in double digits a couple of quarters ago, is now down to 1.5-2%,” he said.

Over the rise of food inflation, Narayanan said there is a “sharp uptick” in prices of fruits and vegetables and oil prices.

“This could lead to an increase in prices if raw material costs become unmanageable for companies. We are ourselves facing a difficult situation as far as coffee and cocoa prices are concerned,” he said.

Nestle India, which owns brands such as Maggi, Kit Kat, and Nescafe also reported a marginal decline of 0.94% and its domestic sales growth was at 1.2%.

Narayanan also pointed out that tier-1 and below towns and rural also seem to be reasonably stable. However, “pressure points” are coming from mega cities and metros.

TCPL MD & CEO Sunil D’Souza also said urban has softened and has an impact on consumer spending in urban areas.

“My hypothesis is probably food inflation is higher than what we think it is and the impact is far higher,” said D’Souza in the earnings call for the September quarter.

HUL CEO & MD Rohit Jawa said the market volume growth trajectory remained muted in this quarter. At an MAT (moving annual total) level, total FMCG volume growth has slowed down slightly in recent months.

“The pattern is quite clear that urban growth has trended down in the recent quarters or quarter and rural has continued to grow gradually and has now for the past few quarters been ahead of urban, and also continues to be ahead of urban this time,” Jawa said in an earnings call.

HUL, which owns power brands such as Surf, Rin, Lux, Pond’s, Lifebuoy, Lakmé, Brooke Bond, Lipton and Horlicks, reported a 2.33% decline in consolidated net profit.

Similarly, Marico also reported “rural growing at 2x the pace of urban” on a year-on-year basis. It also reported “higher input costs in the core portfolios”. Though it already had price hikes in the coconut oil portfolio and a favourable reversal in the pricing cycle in Saffola oils.

“In view of the higher-than-anticipated degree of inflation in copra prices and sharp import duty hike in vegetable oils, the company will focus on its stated revenue growth aspiration while remaining watchful on the margin front during the second half of the year,” it said.

ITC, which operates in the FMCG segment with brands such as Aashirvaad, Sunfeast, Bingo!, YiPPee reported marginal drop of 35 basis points in margins amidst inflationary headwinds in input costs.

It faced “subdued demand conditions” due to unusually heavy rains in parts of the country, high food inflation and sharp escalation in certain input costs during the quarter.

Representational file image.
| Photo Credit: K. Murali Kumar

The Centre said on Wednesday (September 18, 2024) that it does not expect an increase in prices of essential commodities such as sugar and edible oils during the festival season. Talking to reporters on decisions taken by the Food Ministry in the first 100 days of the NDA government, Food Secretary Sanjeev Chopra said the recent decision to increase basic customs duty on some edible oils is meant to help oilseed farmers and it will not lead to a significant price rise. “We have been able to maintain prices at a reasonable level for consumers,” Mr. Chopra said.

He added that the festival season is “looking good.” “We are not anticipating any kind of spike in prices of essentials.” The Centre raised basic customs duty on crude soyabean oil, palm oil, and sunflower oil to 20% from nil. The duty on refined edible oils was increased to 32.5% from 12.5%. Mr. Chopra said 1.3 million tonnes of edible oils imported at zero duty are still in stock. “Industry has been directed to sell this inventory at current prices until exhausted. Even after this stock exhausts, prices need not rise by 20% with an increase in duty. International prices will come down slightly,” Mr. Chopra said.

Mr. Chopra also announced that wheat allocation to beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) will be increased from October. He hoped that the move would stabilise prices of wheat. An additional 3.5 million tonnes of wheat will be distributed under the PMGKAY. “This increased allocation will continue until March 2025,” he said.

The Food Secretary said the Centre is thinking of lifting the export ban on certain varieties of non-basmati rice. “It is under consideration. These things are dynamic, and we will take an appropriate decision depending on the requirement and stocks available,” Mr. Chopra said.

Food prices rose 1.14% over April levels. Image used for representative purpose only. 
| Photo Credit: K. Murali Kumar

Inflation in India’s wholesale prices accelerated to a 15-month high of 2.61% in May, more than double April’s pace, with food inflation surging to a 10-month peak of 7.4% driven by steeper prices for vegetables, fruits, pulses and cereals, and a resurgence of price rise in manufactured products after 14 months of decline.

Economists said the rise in wholesale inflation in May signals there is room for a further surge in consumer prices despite retail inflation easing to a 12-month low of 4.75% last month, especially as food and industrial input prices are spiking globally. May was the seventh month in a row that the WPI rose on a year-on-year basis after seven consecutive months of decline, and it is expected to rise over 3% this month.

On a month-on-month basis, the Wholesale Price Index (WPI) was up 0.2% in May, easing from a ten-month high of 0.8% a month earlier, with food prices rising 1.14% over April levels and manufactured products’ prices up 0.64%.

The heatwaves in May helped fire up the inflation rate for vegetables to the highest level in nine months at 32.4%, and a six-month high of 5.8% for fruits. Price rise in cereals sped to 9%, while that for pulses reversed direction to hit a six-month high of 22%.

Within vegetables, tomato prices were up 64.5% in May from 40.6% in April, while inflation in onion and potato dropped slightly to a tad over 58% and 64%, respectively. Bank of Baroda chief economist Madan Sabnavis said these spikes in vegetable prices were partly due to supply shortfalls and the heat wave aggravated the challenge. “This is a major concern as it will keep up the pressure on the inflation till the next crop comes,” he told The Hindu.

India Ratings flagged similar concerns about pulses prices remaining elevated in double-digits as the new crop would be harvested only in October-November. “Elevated food inflation at the wholesale level is worrisome as this would keep retail food prices firm even going forward. Retail food inflation has been above 8% for the past seven months,” said the firm’s senior director and principal economist Sunil Kumar and senior analyst Paras Jasrai in a note.

India Ratings expects retail food inflation to remain over 8%, with wholesale prices expect to rise further to 3.5%, in June. CareEdge Ratings’ chief economist Rajani Sinha also pointed out that industrial metal prices have risen 9.3% since March-end and food prices are increasing globally.

“Positive rate of inflation in May is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing, etc,” the Commerce and Industry Ministry said.

Food inflation surged to a four-month high of 8.7% in April from 8.52% in March. Representational file image.
| Photo Credit: Reuters

Consumers faced a further acceleration in steep food prices in April, even as India’s overall retail inflation remained virtually unchanged at 4.83% last month, compared with 4.85% in March.

Food inflation surged to a four-month high of 8.7% in April from 8.52% in March, with rural consumers witnessing a sharper uptick of 8.75% in food prices. The gap between urban and rural consumers’ inflation experience remained sharp for the second successive month with rural households seeing a 5.43% rise in prices, while the overall inflation rate faced by urban consumers remained virtually unchanged from 4.14% in March to 4.11% in April.

On a month-on-month basis, price levels rose about 0.5%, with urban consumers facing a sharper uptick in overall prices as well as food items. Food prices rose 1.03% from March levels in urban India, while the rise was more subdued for their rural counterparts at 0.59%. The Consumer Price Index (CPI) was up 0.6% over March for urban households, while it was 0.37% higher for rural India.

The Reserve Bank of India (RBI) expects retail inflation to ease to an average of 4.5% this year from the 5.4% clocked in 2023-24, with the ongoing April to June quarter expected to see an average inflation of 4.9%. With April reporting a marginally lower inflation rate than the RBI’s projected average for the quarter, there could see some hardening in prices over this month and June.

The government has tasked the Reserve Bank to ensure inflation remains at 4%, with a margin of 2% on either side.

Finance Minister Nirmala Sitharaman speaks in the Rajya Sabha on February 6, 2024. Photo: Sansad TV via ANI

Finance Minister Nirmala Sitharaman on February 6 said inflation has come down within the tolerance band as a result of the steps taken by the government to check price rise, especially in perishable commodities.

Replying to a question in the Rajya Sabha, Ms. Sitharaman said Bhabha Atomic Research Centre (BARC) is working with the government on de-humidification of onions through Gamma Rays to give it a longer shelf life.

Also Read | Union Budget | Proactive inflation management helps keep inflation within manageable level: Sitharaman

“The government is seized of the difficulties, which arise due to shortage of perishable goods, which are not grown in India. The committee sits and reviews periodically, and the efforts have shown on the ground that inflation is now within the tolerable band,” she said.

India’s retail inflation has declined from an average of 6.8% in April-December 2022 to 5.5% in the corresponding period of 2023. The retail inflation is now stable and within the notified tolerance band of 2% to 6%.

The Minister said that in order to check the volatility in prices of onion, the government has progressively increased its buffer size from 1 lakh metric tonnes (LMT) in 2020-21 to 7 LMT in 2023-24. As of February 3, 2024, a total of 6.32 LMT of onion was procured, and 3.96 LMT of Grade-A onion was released through retail sales, e-Nam auction and bulk sales.

Also Read | Centre monitoring inflation at ground level, says Finance Minister Nirmala Sitharaman

“Currently, steps are being taken so that the preservation of very highly perishable commodities, like onion, can be improved,” she said, adding lots of steps have been taken by the government, particularly for meeting the shortage in supply of perishable goods.

Ms. Sitharaman said India has imported 8.79 lakh metric tonnes of Tur Dal and 15.14 lakh metric tonnes of Masoor Dal in calendar year 2023. Similarly, the country imported other dals and released them in the market.

India has also brought the branded ‘Bharat Dal’ through which Chana Dal is made available at Rs 60/kg for one kg pack and Rs 55/kg for 30 kg packs. 2.97 lakh metric tonnes of Chana have been sold already as of January 30, 2024. ‘Bharat Dal’, which is coming at a concessional price, is available in all retail markets.

Also Read | Centre’s efforts helped country to achieve highest economic growth rate: Nirmala Sitharaman

“Since we don’t grow enough pulses in the country and due to a shortfall in supply, prices of pulses normally keep fluctuating, for which, by analysing the crop estimates, we start tying up for imports,” Ms. Sitharaman added.

Retail inflation, based on the Consumer Price Index (CPI), in December 2023, stood at 5.69%.