Trump's move can shave off India’s GDP growth rate by up to 50 basis points to 6 per cent
“The maximum adverse impact on India's GDP growth will not be higher than 50 basis points. As per our earlier projection, the GDP growth estimate for current fiscal was 6.5 per cent, which may go down to 6 per cent without retaliation,” EY chief policy advisor D K Srivastava said
New Delhi: With the announcement of the reciprocal tariff on India by the Trump administration, it is likely to impact the country’s economy in some way or the other as India’s exports to the US could fall by 2-3 percentage points in the current fiscal. Trump's move can shave off India’s GDP growth rate by up to 50 basis points to 6 per cent and the country's exports to the US could fall by 2-3 percentage points in the current fiscal, experts said on Thursday.
“The maximum adverse impact on India's GDP growth will not be higher than 50 basis points. As per our earlier projection, the GDP growth estimate for current fiscal was 6.5 per cent, which may go down to 6 per cent without retaliation,” EY chief policy advisor D K Srivastava said, adding that the US tariff hikes could have a favourable impact on the country’s exchange rate as the dollar could come under pressure in the US with a likely rise in inflation.
Besides, Standard Chartered Bank head - India, economics research, Anubhuti Sahay also said an effective 20 percent tariff increase on Indian exports to the US (after considering the exempted goods) in our view is likely to adversely impact India's GDP by 35-40 bps, ceteris paribus. “However, the final impact would depend on the trade deal agreement between India and the US along with how each country negotiates/ retaliates on the proposed tariffs,” Sahay said.
She further said that while a loss in India's GDP is inevitable on higher tariff rate imposition, India is likely to be relatively less impacted amongst the Asian economies as other countries have been hit by higher tariff rates than India or run a larger trade surplus with the US especially in the non-exempted sectors.
The US has announced 27 per cent reciprocal tariffs on India saying New Delhi imposes high import duties on American goods, as the Trump administration aims to reduce the country's trade deficit and boost manufacturing. Essential and strategic items such as pharmaceuticals, semiconductors, copper, and energy products like oil, gas, coal and LNG are exempted from higher tariff rates.
Imports from India are already facing a 25 per cent tariff on steel, aluminium, and auto sectors in the US. For remaining products, India is subject to a base line tariff of 10 per cent between April 5-8. Then the tariff will rise to country-specific 27 per cent starting April 9.
However, Srivastava suggested that India should respond to the 27 per cent US reciprocal tariff by reducing its trade surplus with the US by way of increasing imports from the US, particularly of crude oil, gas and high technology products such as aircraft, nuclear reactors and defence-related imports. “The idea is to focus on trade balance, not on tariff rates,” Srivastava said, adding that some of the tariff rates in India are cosmetic and unnecessary with respect to the US.
Morgan Stanley economists Upasana Chachra and Bani Gambhir said that they expected downside risk of 30-60 bps to growth estimate of 6.5 per cent for FY'26. “While the tariffs exceed our estimates for India, on a relative basis, these are at par/lower than other key competing economies. With goods exports to the US at 2.1 per cent of GDP, the direct impact will likely be less severe,” they said, adding that a slowdown in US growth and weak global trade momentum will impact external demand and “we expect the impact to be more pronounced through the indirect channel of weaker corporate confidence, which will dent the risk appetite and further defer the capex cycle.”
