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Informist, Tuesday, Mar. 11, 2025

 

NEW DELHI – The Indian economy is "well-placed" to face the threats of US President Donald Trump's reciprocal tariffs, Capital Economics said in a report Tuesday. The worst of India's growth slump is over and further policy loosening by the Reserve Bank of India should help support a cyclical recovery over the coming quarters, the report said, adding that "over the longer term, India will remain among the fastest-growing major economies."

 

Capital Economics projects India's GDP to grow 6.6% in 2025, compared to 6.7% in 2024, with the second half of the year likely to be stronger than the first. GDP growth is seen rising to 6.8% in 2026, the report said. India's GDP growth rose to 6.2% in Oct-Dec from a seven-quarter low of 5.6% in Jul-Sept.

 

"Hanging over the outlook is the threat of Trump's tariffs," Capital Economics. "At face value, India could be hit by a particularly high reciprocal tariff on exports to the US. But early concessions to President Trump may mean India is not hit so hard," the report added.  

 

Trump has announced that the US will impose reciprocal tariffs from Apr. 2 on all countries, including India, based on the duty levied by them on American goods. The US' reciprocal tariffs on India may entail an average duty hike of at least 5% on Indian exports to the US, as American goods face a weighted average tariff of 7.7% in India, while Indian exports to the US face only a 2.8% average tariff.

 

Informist reported on Tuesday that Commerce and Industry Minister Piyush Goyal will leave for Washington late Wednesday for another round of talks with the US administration on the proposed reciprocal tariffs. This will be Goyal's second visit to the US in a week.

 

According to Capital Economics, an average tariff rise of 20% by the US would translate into roughly a 0.4% reduction in India's GDP if exchange rates remain stable. The direct hit to GDP from reciprocal tariffs by the US would be "fairly small" as India is not especially reliant on US demand, Capital Economics said. 

 

"The indirect impact could be significant as it would potentially undermine the case for supply chain reconfiguration into India," the report said. "That said, a reciprocal tariff strategy also makes it easier for countries to make deals. India has done so already by lowering import duties on goods that would benefit the US."  End

 

Reported by Shubham Rana

Edited by Saji George Titus

 

 

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