'Major shock' to India from US tariffs, Uday Kotak warns
What's the story
Uday Kotak, the billionaire founder of Kotak Mahindra Bank and India's third-largest private lender, has warned that India is facing a "major shock" from US tariffs. He urged Prime Minister Narendra Modi's government to provide stronger budgetary support to small and medium-sized enterprises (SMEs). The warning comes after US President Donald Trump imposed a 25% levy on Indian imports, including discounted Russian oil, on top of existing 25% "reciprocal" tariffs.
Economic vulnerabilities
'We are at risk'
Kotak told the Financial Times that Trump's tariffs have "woken Indians up" to their economy's vulnerabilities. He said, "We must think about this as an opportunity for us to get out of our cruise mindset and from a comfort mindset to 'we are at risk.'" The billionaire banker suggested that the Indian government should provide "direct fiscal support" to boost small businesses in manufacturing, research, and technology.
Support for SMEs
Industry leaders demand government intervention
Kotak emphasized that once the government provides capital support, private equity, entrepreneurs' equity, and risk capital will follow. His call comes as other industry leaders also demand government intervention. Earlier this month, Mahindra Group Chairman Anand Mahindra sought more liquidity for SMEs, infrastructure investment, and incentives for manufacturers. Similarly, RPG Enterprises Chairman Harsh Goenka suggested the creation of a fund by New Delhi to help exporters find new markets and attract manufacturers relocating from China.
Reform measures
Threat to PM Modi's manufacturing push
PM Modi has promised a series of tax and regulatory reforms to boost business, including GST cuts and reducing bureaucratic red tape. However, the steep US tariffs threaten his goal of strengthening Indian manufacturing, which currently contributes about 14% to GDP, well below the target of 25%. Many economists say India needs to sustain GDP growth at around 8% to achieve Modi's long-term vision of a developed economy status by 2047.
Growth impact
Tariffs could reduce India's growth
India's economy expanded by 7.4% in the first quarter year-on-year (YoY). However, analysts warn that tariffs on exports to the US, India's largest trading partner, could reduce growth by almost 0.5% points. Kotak, a highly influential figure in Indian finance, highlighted both risks and opportunities presented by this tariff regime, saying "The uncertainty of Trump's tariff regime has created a sense of urgency for transforming India," adding "It is a great opportunity to pivot."
Economic stability
Kotak warns against complacency
Kotak stressed that India's macroeconomic fundamentals are strong and under control. He called on policymakers and businesses to use this trade shock to enhance "productivity, efficiency, excellence, and building world-class brands." The billionaire banker also emphasized the importance of manufacturing while warning against complacency by relying solely on India's domestic market. With a per capita GDP of $2,700, far below China's $13,300 and the US's nearly $89,000, he argued India cannot afford to remain in a comfort zone.