India scraps ‘Google tax’ to mollify Donald Trump as tariffs loom

Good morning. After months of losses, Indian stocks have finally seen a bit of buying this week. I spoke to Quantum Mutual Fund’s Ajit Dayal on his outlook for the markets and why he’s asking his new US investors to put their money here instead of China. But first, India tries to soften the potential blow from Donald Trump’s tariffs.

Calling truce on tariffs

With US tariffs coming into force within days, India has been busy taking several pre-emptive steps to try to reduce their impact. One example this week is the scrapping of a 6 per cent tax on online advertisements, popularly referred to as the “Google tax”. 

Introduced in 2016, the tax was aimed at global companies that earned revenues from Indian users, even when they did not have a “physical” presence in India. It was meant to help level the playing field for Indian internet companies. In 2020, the government added a 2 per cent “equalisation levy” on digital services provided by ecommerce companies. The US administration called it “discriminatory and unreasonable” and the government repealed it last year. 

While large American tech companies such as Google, Meta and Amazon will be the biggest beneficiaries of this week’s move to scrap the 6 per cent tax, they were mostly passing this tax down to advertisers anyway. Indian companies using these massive platforms to market their products and services will see some savings.

This is but one of several steps the government is taking in order to soften the coming blow of tariffs. A US delegation is in Delhi this week to discuss the terms in a proposed bilateral trade agreement, ahead of April 2 (next Wednesday), Trump’s self-imposed deadline for his numerous tariffs against America’s trade partners. India’s pharmaceutical, apparel and gems and jewellery industries are likely to see the biggest impact. But in keeping with his stream-of-consciousness style of policymaking, the US president has said that he may give several countries “breaks” from his reciprocal tariff actions, without giving any details. 

Trump loves to hear that his pressure on other countries is working. With a trade surplus of $45.7bn in 2024, India needs the US more, so the Americans have the upper hand in these negotiations. The hope is that by demonstrating India’s efforts to make itself a viable market for American businesses, it will have the desired effect on Trump’s psyche and help smooth trade talks.

• Trump has announced 25 per cent tariffs on imports of foreign-made cars, throwing the auto industry into turmoil. The biggest potential winner? Chinese electric vehicles.

Do you think India’s proactive move to cut duties will work in its negotiations with the Trump administration? Write to us at indiabrief@ft.com.

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Indian stocks: more pain before profit

In January this year, Ajit Dayal’s (loyal readers will remember his “My mantra” contribution) Quantum Mutual Fund launched the Q India Equity Fund, which will facilitate US investments into Indian stocks. In a long, freewheeling conversation with me, Dayal shared his thoughts about the economy, stock markets and China. Here are some edited excerpts.

Q: What is your view on the Indian market?

A: The economy may be flatlining, but Indian companies’ revenues are increasing . . . so I think there will be an increase in share prices of the large companies. But that also has a certain limitation. Once you’ve captured the market share that the small guys have vacated, you still need growth in the economy, right? And that’s the growth we’re missing. Consumer sentiment and capacity utilisation of large manufacturing in India are now just about back at their pre-Covid levels. Now we have to wait for a spurt in consumption. Even with the tax cuts in the Budget, I don’t see it as immediately contributing to consumption. It will largely be used to pay back debt. So markets will stagnate because they have been overpriced and economic indicators are not showing consumption growth. 

Q: Indian stocks have been correcting since November. Do you see a further downside?

A: I believe the correction can continue for some time. Foreign investors are selling for two reasons. One, India has become expensive, and Indian policymaking is not showing a breakout in consumption or growth. And second, they have gone back to US dollars because interest rates are rising, and if you are getting 4.5 per cent in dollars in the US economy, why would you risk it to be in India at this point? 

We have been talking about domestic money keeping the market afloat. But if investors start to see consistent negative numbers in their mutual fund reports, they are going to start redeeming. And that will be the next round of selling pressure. This risk is especially acute in small and medium stocks. 

Q: So under these circumstances, what are you telling your potential American investors about putting their money in India?

A: Our investment philosophy is long-term. In our analysis, we have seen that whenever there has been a coalition government in India, GDP has gone up. After 10 years of single-party governance, we now have a coalition at the centre. We take that as a good sign. India’s GDP is nearly double the World Bank’s projection of 3.2 per cent GDP growth for the world.

The other thing we tell our investors is about the link between GDP and share prices. Unlike India, in China there is no direct correlation between GDP growth and share prices (see chart).

Both of these are compelling factors. I don’t know about private equity or infrastructure. But from a public market perspective if you have to allocate to one country, it’s a no brainer that it should be India. 

Go figure

IPL, the annual cricket extravaganza, is here, and it looks like it already has viewers in its spell right off the bat. Last Sunday’s match between Chennai Super Kings and Mumbai Indians was the most watched IPL match ever, according to reports citing the Broadcast Audience Research council.

Read, hear, watch

I have been watching The Pitt, a medical drama that takes place over a 15-hour shift in an emergency room in the US. It is remarkably well cast, with mostly unknown actors, and checks all the boxes of an old-world television drama. It is, as the kids say, full of feels. (Fair warning — there is a lot of projectile vomiting and spurting of bodily fluids involved. I wouldn’t advise watching it while eating dinner, having learnt from bitter experience). While I have been indulging in the primal, my editor Tee has been engrossed in the profound. Over to him.

The FT’s pieces about Apple TV+’s Severance have variously called it “brilliant”, “superlative” and “dystopian”. These are all accurate descriptions. In the spirit of the show — an existential satire of soulless office life — I will add this line of cringey corporatise: it is a paradigm-shifting work that leverages impeccable set design and a star-studded cast to achieve impactful synergies (translated: please watch it, if nothing else it’s really pretty). — Tee

Buzzer round

What connects Claudia Sheinbaum, Volodymyr Zelenskyy, Emmanuel Macron and Keir Starmer other than the fact that they are leaders of their respective countries?

Send your answer to indiabrief@ft.com and check Tuesday’s newsletter to see if you were the first one to get it right.

Quick answer

On Tuesday, we asked: Indian tech stocks have taken a big beating. What is your strategy? Here’s how you responded.

Thank you for reading. India Business Briefing is edited by Tee Zhuo. Please send feedback, suggestions (and gossip) to indiabrief@ft.com.