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Informist, Friday, Aug. 1, 2025

 

By Krity Ambey

 

NEW DELHI – The reciprocal tariff imposed by the US may bring India's total exports below $400 billion for the first time in four years in the current financial year and pose a downside risk of at least 20 basis points to economic growth, according to experts. Washington will start collecting 25% duty on Indian goods from Aug. 7.

 

Quick estimates suggest India's goods exports to the US may fall 30% to $60.6 billion in the financial year 2025-26 (Apr-Mar) from $86.5 billion in FY25, former commerce ministry official and think-tank Global Trade Research Initiative Founder Ajay Srivastava said.

 

Washington's reciprocal tariffs on other countries--especially competing Asian peers--are less than the 25% announced for India, which may hurt India's competitiveness in labour-intensive exports, Federation of Indian Export Organisations Director General Ajay Sahai said. Asian competitors like Vietnam, the Philippines, and Indonesia now have a tariff advantage of 5% over India.

 

"So the reciprocal tariff may affect Indian exports from sectors like gems and jewellery, apparel, leather and footwear, which comprise 55% of India's shipments to the US," Sahai said. In absolute terms, the tariffs may affect nearly $50 billion of exports to the US.

 

These quick estimates from the experts account for only the 25% reciprocal tariff. Besides this, US President Donald Trump has also announced "penalties" on India for its trade and security partnership with Russia. These penalties are yet to be clarified. Exports of steel, aluminium, and automotive products to the US have already become expensive due to Washington's sector-specific tariffs. All of this may bring India's total outbound shipments below $400 billion in FY26.

 

But India's economic growth may see a downside risk of only 20-30 bps, according to economists. The immediate economic impact of a 25% tariff would be small as India is not nearly as dependent on US demand as many other emerging economies, Shilan Shah, deputy chief Emerging Markets economist at Capital Economics, said.

 

"We do not see the 25% announced tariff meaningfully impacting GDP growth, pegging the likely impact at (about) 30 bps," Barclays said in a report. There are also hopes that the tariff impact may be contained if New Delhi finalises a trade deal with Washington. If no deal is signed by October, India's GDP growth estimate may face a downside risk of 20 bps, according to Elara Capital Economist and Executive Vice-President Garima Kapoor.

 

While initiating negotiations in February, the two sides had set a timeline of the fall season of 2025 for concluding the first tranche of their bilateral trade agreement. New Delhi and Washington have so far held five rounds of negotiation. The sixth is scheduled to begin Aug. 25, more than a fortnight after the US begins collecting the 25% duty on the import of Indian goods.  End

 

US$1 = INR 87.54

 

Edited by Rajeev Pai

 

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