For a sign of the degree to which US President Donald Trump’s decision in August to double tariffs on most Indian goods to a staggering 50 per cent – the highest rate across Asia – is weighing on investor sentiment, look no further than the rupee.
Having plumbed a series of record lows in recent months, India’s currency has been the worst performer in Asia this year and has breached the psychologically important level of 90 per US dollar. One of the last major economies yet to strike a trade deal with the United States, India has suffered because of America’s role as its largest export market.
Even though the country’s vast domestic market is the core driver of growth, a widening current account deficit and a sharp increase in outflows of foreign capital from India’s stock market have heaped pressure on the rupee.
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Yet the strain on the currency is not the only way in which Trump’s tariffs are weighing on India’s economy. Last month, Prime Minister Narendra Modi announced the most radical overhaul of India’s Byzantine labour laws since the country’s independence from Britain in 1947.
Although the legislation was approved by parliament in 2020, its implementation was delayed because of stiff opposition from labour unions. The reforms, which consolidate 29 laws into four new codes, make it easier for employers to hire and fire workers, increase job flexibility and formalise India’s vast informal sector.
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Crucially, the threshold for firms requiring government approval to lay off workers or shut down has been raised from 100 to 300 workers. The changes also do away with restrictions on hiring women for certain jobs. State Bank of India expects the overhaul to increase the share of formal employment by 15 per cent, helping create 7.7 million new jobs.