How will the Indian economy be impacted if the Donald Trump administration imposes reciprocal tariffs on Indian exports?
Which sectors of the Indian economy will suffer most with its exports to the US falling if Donald Trump imposes product-based tariffs on Indian goods?
In a meeting with Indian Prime Minister Narendra Modi in the Oval Office of the White House, the US President announced in the most unambiguous words that he would impose reciprocal tariffs, “no more, no less” on all Indian exports to the country.
He reiterated it when he defended the stopping of USAID funding to New Delhi saying that India has enough money as it is “one of the highest taxing countries in the world”.
He added that the US “can hardly get in there because their tariffs are so high.”
Analysts believe, if Donald Trump imposes reciprocal tariffs on India, New Delhi will find it difficult to export to the US in a big way.
Besides, the trade diversion may make India a dumping ground for other countries, like China.
Will GDP Growth Rate Be Hit By Reciprocal Tariffs?
Multinational investment bank Goldman Sachs has found in a study that if the US imposes reciprocal tariffs on New Delhi, the GDP growth rate of India may come down by 0.1% to 0.6%.
It said further in the report, “India’s domestic activity exposure to US final demand would be roughly twice as high (4% GDP) given exposure to the US via exports to other countries, and would likely result in a potential domestic GDP growth impact of 0.1-0.6pp.”
Goldman Sachs: Average Tariffs On India To Go Up
Goldman Sachs also said that if Washington decided to increase the tariff on all US imports by the average tariff differential between a particular country and the US, the average effective tariff rates on Indian imports would increase by 6.5 percentage points.
The US-based investment bank also found in its study that the weighted average effective US tariff rate on Indian imports could increase by 6.5-11.5 percentage points.
India-US Bilateral Trade To Soar
Though the India-US bilateral trade during FY 2024-25 is estimated to touch $193 billion, it is just 2% of the US GDP, one of the lowest among all emerging economies.
However, the GDP growth rate of India may go further down, if Washington imposes tariffs.
Experts believe, if the US imposes reciprocal tariffs on India, electronics, pharmaceuticals, and textiles, could be hit hard.
As the two countries will soon begin talks on Bilateral Trade Agreement, analysts believe the Donald Trump administration is most likely to use the proposed BTA to push India to buy more and more of its goods and increase the US imports many folds.
Much depends on how India tackles the issue, whether it surrenders to the US pressure or talks tough and extracts many more concessions adopting the concept of reciprocity and “give and take relations” rather than appeasing the other side.
New Delhi will also face the challenge of tackling the issue of trade diversion. In such a case, it will have to face imports from China at competitive prices.
