Could it be long peace for the Middle East finally or is what we have seen in the last 24 hours is just posturing, nothing more and nothing less?
Swaminathan Aiyar: I would say that what is happening is astonishingly positive. Just as we thought we are getting into a war, we are actually getting into a peace, and getting out of the war. We have an unusual situation now where there is in effect a ceasefire in Ukraine, Kyiv; a ceasefire is foreseen over Israel and Iran. The Americans have finished off the regime in Iran which seeks no immediate revenge. It wants to survive right now. We had an almost laughable situation where Iran said they will send some missiles to bomb American facilities in Qatar, but informed them in advance, so that everything would be safe and there would be no damage and no escalation.
So, at this particular point, when people were worrying about World War III or a nuclear war, the attitude of the Iranian government was ‘I just want to survive, I want to de-escalate at this point.’ So, we have a situation which is very positive in terms of both Kyiv and what is happening in Israel. Peace is breaking out, in a sense, in both ways. So, a lot of the things that we are worrying about are giving way to pretty positive things as far as geopolitics is concerned. Far from being worst case scenarios, we are moving towards some pretty good case scenarios as far as the hostilities are concerned. And shall we say India-Pakistan also? So, India-Pakistan, Iraq-Iran, Russia- Kyiv, everything is settling down at this particular point. It is a very surprisingly positive outlook right now.
Who will be the eventual winner of this entire so-called geopolitical adjustment? It looks like India is going to be the disproportionate beneficiary. We have stayed out of taking sides. We have had a huge victory when it comes to the India-Pakistan conflict. In terms of geopolitical tensions, it is the US versus China and Russia. India is neutral and the biggest beneficiary?
Swaminathan Aiyar: India is in a sweet spot. It is more than that. If you look at the actual performance of the last two financial years, 2023-24 growth has been revised up to 9.2%. When that happened, a lot of people sneered and said this is because of an extremely extraordinarily low GDP deflator. But if that was the case, then we should have had just the other way around in 24-25 and therefore, 24-25 should have come down.
So, the proper thing is to take the average of the two. If you take the average of those two years, it is 7.8%. It is nowhere near the 6.5% that Mr Anantha Nageswaran, Chief Economic Adviser, is aiming at. It is far above at a time when the overall global situation has been very tough. So, I can only say that it is not just India’s prospects, India’s actual performance in the last two years on the basis of the latest data, looks so exceptional that there is a case for optimism that this year too, we will exceed the kind of targets being put out.
On the other hand, the chance of a recession in the USA remains. The other thing that is happening is Mr Trump has persuaded or shall we say forced a new attitude in Europe. The European Union instead of saying we will spend 3% of GDP on defence, will have to aim at 5%. So, the cold war dividend is now gone and all these countries will be spending more on armament. There may be correspondingly less available for consumer demand to that extent and that could be a negative. These are the two medium-term negatives still out there. But overall, India has the capacity to look forward with some confidence that we have overcome extremely difficult situations. Will we be able to overcome the challenges of the coming short recession? Possibly. Will we be able to overcome this gradual fall in consumer demand that we are seeing? Yes. What will happen about Mr Trump’s tariffs remains a question. The 90 days deadline for Trump tariffs is coming up. What happens after 90 days? Will the reciprocal tariffs come back? Will they go up? Will they go down? We have a new situation in the USA where some courts are beginning to take note of does Mr Trump have the right as president to declare that on the basis of national emergency, he is going to raise these tariffs across the board? One American court has ruled that while you can do specific things like raise tariffs on priority items like aluminium or steel, but to impose a 10% tariff across the board is not an emergency action. So, let us see what happens. The courts also may be able to stop some of the worst actions that Mr Trump has threatened on the tariff side. We are getting close to that 90-day deadline. Let us see. But as I said, the overall situation is looking much rosier than I would have said one month ago.