Could Elon Musk’s Impact Spell Trouble for India? Insights from CNBC’s Inside India Newsletter

On June 20, 2023, Indian Prime Minister Narendra Modi met with Elon Musk in the U.S. This encounter has sparked discussions about India’s role in global trade, especially in light of potential U.S.-China trade tensions.

As President Donald Trump takes office, he has promised to implement tariffs on imports from China. This move is seen as a double-edged sword. It raises concerns among global investors but could benefit India as American companies may look to diversify their supply chains away from China.

Economists believe that India and Indonesia could become key beneficiaries of these trade shifts. They have relatively low geopolitical risks and vast domestic markets. If U.S. manufacturers start to look at India for alternatives, it could spark significant economic growth there.

However, not all analysts are optimistic. They argue that while tariffs could change the landscape, they might not boost U.S. manufacturing significantly. Instead, tariffs could lead to higher inflation without much economic growth, a scenario that Trump will want to avoid.

Interestingly, Elon Musk, CEO of Tesla, stands at the center of this potential trade narrative. His significant business ties to China may influence how U.S.-China relations unfold. Reports suggest that China might even see Musk as a potential mediator to ease tensions. There’s speculation that the Chinese government could ask him to help facilitate a smoother relationship, potentially even involving TikTok’s U.S. operations.

However, if the U.S. successfully negotiates a trade deal with China, it could be detrimental for India. Experts point out that a deal may diminish the urgency for companies to move operations away from China, which has a well-established supply chain and competitive pricing.

Musk has publicly criticized India’s high tariffs on automobile imports. He might not be favorable to India if it leads to elevated trade tensions with the U.S. In an effort to attract Musk, India’s government reduced electric vehicle import duties from a staggering 100% to 15% starting in 2024.

Yet, the broader trend of diversifying supply chains may continue. Both the COVID-19 pandemic and existing trade imbalances are significant factors driving companies to reconsider their reliance on China. As time goes on, these underlying issues may keep pushing firms to explore opportunities in India.

In the Indian market, inflation is easing. In December, inflation dropped to 5.22%, lower than expectations. This trend might give the Reserve Bank of India room to cut interest rates as economic growth slows.

However, some companies are facing delays. Reports suggest that China may be holding up exports of essential equipment to Indian manufacturers. Although no formal restrictions have been announced, these delays could be part of a broader strategy by Beijing.

The Indian rupee has recently dipped against the U.S. dollar, raising concerns about currency stability. Nonetheless, Indian officials report that they have sufficient foreign exchange reserves to handle any major fluctuations.

Upcoming economic events include China’s GDP and retail sales figures, which analysts will be watching closely. The developments in both India and China continue to create a dynamic landscape for global trade, making it an intriguing time for investors and businesses alike.

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