US President Donald Trump’s further tariffs on India will additional injury the South Asian nation’s already slowing economic system and shrink its gross home product by as a lot as a share level, analysts mentioned.
Trump on Thursday doubled tariffs on Indian items to 50 per cent as penalty for purchasing Russian oil, in a transfer that would make exports to the US of many industries uncompetitive.
The cumulative tariffs — increased than not simply these for India’s export rivals reminiscent of Vietnam, but additionally China — may lower outbound shipments to the US by 60 per cent and shave a few share level from GDP, estimates Bloomberg Economics. India’s central financial institution sees the economic system increasing 6.5 per cent in fiscal 2026 — identical as final yr and means beneath the typical 8 per cent development seen earlier than that.
“The general hit to GDP could possibly be even increased at 1.1 per cent over the medium time period” as soon as tariffs on sectors reminiscent of prescription drugs and electronics are introduced, wrote analysts Chetna Kumar and Adam Farrar.
Analysts see the brand new levies efficient in 21 days hitting exports from labor-intensive sectors reminiscent of gems and jewellery, textiles and footwear, probably halting enterprise in these items. The transfer can also be anticipated to power India to actively scout for different markets.
New Delhi referred to as the transfer “unfair, unjustified,” blasting Trump for singling out India when different nations are additionally shopping for oil from Moscow.
Sonal Varma and Aurodeep Nandi, economists at Nomura Holdings Inc., mentioned the 50 per cent tariff can be just like a “commerce embargo, and can result in a sudden cease in affected export merchandise.”
Low worth addition and slim margins throughout many industries may make it laborious for smaller corporations to compete, they added. The US is India’s largest export vacation spot for items, making up almost a fifth of complete outbound shipments.
Citigroup Inc.’s Samiran Chakraborty mentioned exports will change into “economically unviable” and “a linear extrapolation of the affect is perhaps an underestimation.”
India’s present and capital account flows too will really feel the pressure, Chakraborty mentioned. With the rupee near its file low, the central financial institution might should intervene to cushion any sharp depreciation, he mentioned.
Citigroup estimates a 0.6-0.8 share level draw back threat to annual development from the upper tariffs.
The federal government doesn’t count on the injury to be as extreme.
Dammu Ravi, secretary for financial relations in India’s international ministry mentioned India will have a look at different alternatives if US turns into “tough to export,” mentioning South Asia, Africa and Latin America as potential markets.
“Its very pure for nations to search for options when you find yourself affected by a wall of tariffs in any a part of the world,” he mentioned.
If excessive tariffs persist, analysts count on coverage assist from the federal government and the Reserve Financial institution of India to spice up development. The levies are relevant on two-thirds of India’s shipments — value $58 billion — to the US, based on Morgan Stanley.
The RBI might undertake two reductions of quarter-point every, on high of the 25 foundation factors rate of interest lower factored, wrote Bani Gambhir and Upasana Chachra of Morgan Stanley in a notice to purchasers. The central financial institution on Wednesday stored charges unchanged, as policymakers selected a wait-and-watch strategy amid tariff uncertainty.
Furthermore, the federal authorities can also be more likely to pause fiscal consolidation and probably enhance capital spending to assist home demand, they wrote.
Extra tales like this can be found on bloomberg.com
Revealed on August 7, 2025
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