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Informist, Wednesday, Jul. 30, 2025

 

By Krity Ambey

 

NEW DELHI – The extent of the headwinds the Indian economy may face due to the recently announced 25% tariffs and the additional penalties by US President Donald Trump depends largely on how soon New Delhi can finalise a trade deal with Washington. The impact on the economy could be short-lived and manageable, or, if an agreement isn't reached by October, it may result in at least a 20-basis-point hit to the GDP growth, according to experts.

 

New Delhi and Washington have so far held five rounds of negotiation and the next one is likely scheduled to begin Aug. 25, more than a fortnight after the US begins collecting the 25% duty on the import of Indian goods along with the announced "penalty" for trade ties with Russia. The two sides in February, while initiating the deal, had set a timeline for concluding the first tranche of the Bilateral Trade Agreement by Fall of 2025.

 

While it is difficult to estimate the overall impact of Trump's latest announcement for India, given the lack of clarity on the size of the penalty, the 25% tariff is for a limited period--as soon as India culminates the BTA, this rate can be brought down, Federation of Indian Exports Organisation Director General Ajay Sahai said. But India's GDP growth estimate may face a downside risk of 20 bps if no deal is signed by October, according to Elara Capital's Economist and Executive Vice President Garima Kapoor. 

 

ICRA Ltd.'s Chief Economist Aditi Nayar also noted that the US tariff is likely to pose downside risks to GDP growth in 2025-26 (Apr-Mar). "The extent of the downside will depend on the size of the penalties imposed," Nayar said. ICRA had earlier projected an economic growth of 6.2% in FY26. The finance ministry has projected the GDP to grow in the range of 6.3% to 6.8% in the current fiscal.

 

The immediate economic impact of a 25% tariff would be small as India is not anywhere near as dependent on the US demand as many other emerging economies, Capital Economics' Deputy Chief Emerging Markets Economist Shilan Shah said. "The impact over time would be larger. A 25% tariff is higher than the tariffs that Trump has announced on other Asian economies such as Vietnam (20%), the Philippines (19%) and Indonesia (19%), and so at the margin it would somewhat diminish India's appeal as an alternative to China for the reconfiguration of supply chains," Shah added.

 

Meanwhile, the Indian government said it is currently studying the implications of the tariffs and additional penalty. The government is committed to concluding a mutually beneficial bilateral trade agreement, the commerce ministry said in a statement Wednesday, adding that it attaches the utmost importance to protecting and promoting the welfare of Indian farmers and entrepreneurs. "The government will take all steps necessary to secure our national interest."

 

Contentious subjects related to the farm and dairy sectors are a major reason for the delay in conclusion of the India-US trade deal. Trump, on multiple occasions, has expressed interest in gaining access to India's agri market, but India has drawn a clear red line in trade agreements when it comes to opening the farm sector. "India has not walked away from the deal; it has negotiated in good faith but refused to cross its red lines," said Ajay Srivastava, former commerce ministry official and founder of think-tank Global Trade Research Initiative.

 

But the 25% tariff announced by Trump does give New Delhi a reference point in trade deal negotiations with Washington, FIEO's Sahai said. "At least now we know that whatever we have to do is with reference to 25%. India can negotiate the trade deal and see to what extent the duty can be absorbed," Sahai added.

 

Indian exporters are in for a challenging time ahead as the top export destination—with nearly 20% share in India's total outbound shipments—announced 25% tariff and penalties. India had exported goods worth $86.51 billion to the US in FY25 and had a trade surplus of $40.82 billion during the period, according to commerce ministry data.  End

 

US$1 = INR 87.42

 

Edited by Tanima Banerjee

 

 

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