📰India Escalates Trade War on Automobiles with U.S.

Good afternoon, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

• India has formally challenged the United States at the World Trade Organization over elevated tariffs on automobiles,

• the rupee is expected to make only modest gains this year and continue underperforming most of its Asian peers,

• and global airlines are doubling down on India.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

India Escalates Trade Tensions With U.S. Over Auto Tariffs at WTO.

India has formally challenged the United States at the World Trade Organization over elevated tariffs on automobiles, signaling a more confrontational trade stance as both nations aim to finalize an interim agreement ahead of a key July deadline.

In a WTO filing on Tuesday, India described the 25 percent U.S. tariffs on passenger vehicles, light trucks, and certain auto parts as “safeguard measures”, a term for emergency import restrictions that unfairly harm its exporters. The South Asian country has requested consultations with Washington under the WTO’s dispute settlement mechanism.

According to the filing, India believes the tariffs are aimed at shielding U.S. domestic industries from increased imports, which violates obligations under Article XIX of the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Safeguards.

“India considers that the measure, in its design and effect, constitute safeguard measure within the meaning of Article XIX of GATT 1994 and the Agreement on Safeguards,” the filing said, adding that if no resolution is reached within 30 days, New Delhi reserves the right to withdraw equivalent concessions granted to the U.S.

The challenge marks an increasingly assertive turn in India’s trade diplomacy, as New Delhi follows China’s lead in mounting pressure on Washington amid escalating tariff actions from the administration of President Donald Trump. Recent moves by the U.S., including doubling duties on steel and aluminum imports, have triggered growing frustration in India, which has also threatened retaliatory tariffs on select American goods. President Trump’s claim to have brokered peace between India and Pakistan also marked a turning point in U.S.-India relations, as India felt it delegitimized their ceasefire efforts, made the country seem as an equal aggressor, and an equal power to its counterpart.

The WTO action coincides with a visit to New Delhi by a U.S. trade delegation that is working to iron out remaining differences in ongoing negotiations. Both sides have expressed optimism about reaching a limited trade deal in the coming weeks, but friction over tariffs continues to complicate talks.

Trade experts say India’s challenge at the WTO reflects its evolving role in global trade as it pushes to protect domestic industries while asserting itself more forcefully on the international stage.

As the world’s fifth-largest car market and a growing hub for automotive manufacturing, India has a vested interest in ensuring global trade rules support its industrial ambitions. Its auto exports have grown steadily in recent years, particularly to the U.S. and Europe, making market access a critical concern.

Rupee to Trail Most Asian Currencies.

Despite India’s stellar economic growth, the Indian rupee is expected to make only modest gains this year and continue underperforming most of its Asian peers as the U.S. dollar weakens, according to a Reuters poll of foreign exchange strategists.

The rupee, which is partially convertible, has shown little momentum against the greenback in 2025. As of early June, it is down around 0.3 percent for the year, making it one of Asia’s laggards, despite the economy’s impressive 7.4 percent expansion in the January–March quarter, the fastest growth since early 2024.

While the U.S. dollar has come under pressure due to rising concerns over President Donald Trump’s unpredictable trade policies and a widening fiscal deficit, exacerbated by recent tax cuts and a sweeping spending bill, the rupee hasn’t been able to take full advantage. Regional currencies like the Korean won, Thai baht, Malaysian ringgit, and Philippine peso have all appreciated more than 4 percent year-to-date.

Future forecast: According to the median forecast from 41 foreign exchange strategists, the rupee is expected to gain just 0.8 percent in the next three months, reaching 85.25 per dollar by the end of August. It’s then forecast to marginally strengthen to 85.10 in six months before easing back to 85.25 in a year.

“The rupee is on somewhat stable footing right now and is likely to hold steady, especially in a weak dollar environment,” said Dhiraj Nim, an FX strategist at ANZ. “Q1 GDP came in much stronger than expected, adding upside risk to India’s growth story. But in any global risk-off scenario, capital tends to seek safety, and I don’t think India is where global capital can find safety.”

RBI’s gameplan: The Reserve Bank of India is expected to cut interest rates by 25 basis points to 5.75 percent at its upcoming meeting on Friday, with another similar cut projected later this year. Even with 100 basis points of cumulative cuts anticipated, the easing cycle would still be one of the shallowest India has seen in more than a decade.

Nim also noted that the RBI is likely intervening behind the scenes to curb volatility, having already sold billions in U.S. dollar forwards. These positions will need to be unwound, meaning the central bank may soon step in to buy dollars to rebuild reserves, which stood at a robust $693 billion (₹59.5 trillion).

Such interventions could further limit the rupee’s upside potential. The currency has already declined over 2 percent since reaching a near seven-month high on May 2, and analysts say it may struggle to recover ground.

Global Airlines Shift Focus to India as Transatlantic Demand Slows.

As transatlantic travel demand shows signs of cooling, global airlines are doubling down on India, drawn by its rapid economic growth, surging middle class, and long-term aviation potential. Major carriers, including Delta Air Lines, Air France-KLM, and Virgin Atlantic, are expanding their presence in the country, while local players like IndiGo and Air India are pushing ahead with global ambitions.

At the International Air Transport Association’s (IATA) annual general meeting in New Delhi this week, Delta announced a non-stop route between Atlanta and New Delhi and deepened its partnership with India’s low-cost giant IndiGo. The US airline, along with partners Virgin Atlantic and Air France-KLM, also plans to expand codeshare arrangements to tap into the fast-growing market.

“It’s hard to find a more exciting market right now than India,” said Virgin Atlantic CEO Shai Weiss. “It’s going to be a tough market in the beginning, it’s going to be well competed, but we’re betting on the next 30 years.”

Airlines taking action: Air India, now under Tata Group ownership, has ordered 570 aircraft from Airbus and Boeing, including widebodies to support long-haul expansion. IndiGo, meanwhile, recently added 60 Airbus A350s to its backlog of over 900 planes, further strengthening its international aspirations. The airline also maintains codeshares with British Airways, Qantas, and Japan Airlines, positioning itself as a key partner for global carriers entering India.

India is already the world’s third-largest domestic aviation market, and with a population of over 1.4 billion and rising income levels, the country is expected to remain a primary engine of air travel demand. This optimism comes as global aviation faces headwinds, including economic uncertainty and trade-related turbulence, especially on US–Europe routes.

British Airways, which currently operates 56 flights per week to India, is among those seeking to grow. CEO Sean Doyle noted that while capacity may initially outpace demand, “eventually, demand catches up. There’s a lot of opportunity for direct long-haul services to and from India.”

Thai Airways also plans to deepen its footprint, expanding on its 75 weekly flights to eight Indian cities and exploring partnerships beyond its current tie-up with Air India. CEO Chai Eamsiri cited strong travel demand between India and Thailand but said growth is limited by aircraft delivery delays.

Regulatory challenges: Despite the enthusiasm, India’s tightly controlled aviation framework remains a barrier. The government’s bilateral agreements cap the number of flights foreign carriers can operate, limiting growth potential. Emirates, which is barred from adding flights despite surging demand, has urged the Indian government to revise these outdated rules.

Still, industry leaders agree that the long-term outlook for India’s aviation market is bullish. With global carriers adjusting strategies and redirecting capacity toward Asia, India is poised to become a centerpiece of international air travel in the decades to come—if its infrastructure and policy frameworks can keep pace.

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Gupshup.

Macro

• India will conduct its next population census in two phases starting March 2027, including caste data for the first time in decades. The move follows a four-year delay and aims to address political and social equity concerns.

• India's services sector continued strong growth in May, driven by high export demand and record hiring, with the HSBC Services PMI at 58.8, indicating steady expansion despite rising price pressures. The sector has maintained growth for nearly four years, staying well above the 50-mark that separates growth from contraction.

• Expanding conflict zones and missile threats are increasingly disrupting airline operations, causing costly flight cancellations and reroutings. Airlines are facing higher expenses and market share losses while boosting investments in security and data planning to manage these risks.

Equities

• Indian stocks paused their recent rally as the Nifty 50 fell below a key support level, signaling caution among investors. While HSBC remains bullish on REITs ahead of expected rate cuts, block trades and mixed outlooks for chemical firms suggest market momentum may slow.

• Airbus procurement chief Juergen Westermeier will take over as head of the company’s India and South Asia operations starting September 1, an internal memo revealed. No successor has been named yet, as Airbus continues to face supply chain challenges and production delays.

• Indian conglomerate Vedanta said that U.S. President Donald Trump's decision to double aluminium tariffs to 50 percent harms the Indian aluminium industry, which is already struggling with rising imports. The increased tariffs, effective Wednesday, risk creating surplus and threaten access to the domestic market, Vedanta warned.

Alts

• Adani Group's airports unit has secured $750 million (₹64.4 billion) in funding from a consortium of international banks including First Abu Dhabi Bank, Barclays, and Standard Chartered. The company will use $400 million (₹34.3 billion) to refinance existing debt, while the remaining funds will support capacity expansion and infrastructure upgrades at six of its airports.

• Reliance Jio and Bharti Airtel, through a telecom industry group, have opposed India's proposed low satellite spectrum fee, warning it could hurt their business and favor providers like Elon Musk's Starlink. The regulator suggested a 4 percent annual revenue fee for satellite services, aligning with Starlink's push to avoid auctions and instead assign shared licenses.

• India’s finance ministry wants green hydrogen prices to fall before offering financial support for green steel production, sources said, citing concerns over inflation and spending. This could delay incentives sought by the steel ministry and slow progress on the country's 2070 net-zero goals.

• India's REC has received government approval to issue deep-discount bonds again, allowing it to raise up to $581.7 million (₹50 billion) by March 2027. These zero-coupon bonds, sold at a significant discount and redeemed at face value at maturity, help REC raise funds without paying regular interest, following a similar successful issuance last year.

Policy

• India opposed the Asian Development Bank’s $800 million (₹68.7 billion) loan to Pakistan, citing concerns over rising defense spending, poor governance, and economic instability. Despite objections, the loan was approved to help strengthen Pakistan’s public finances.

• India has instructed Turkish Airlines to ensure full compliance with aviation regulations after inspections revealed safety lapses in its passenger and cargo flights. The Directorate General of Civil Aviation conducted the checks across four Indian cities between May 29 and June 2, according to the civil aviation ministry.

See you Thursday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.