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Informist, Thursday, Aug. 28, 2025

 

MUMBAI – The additional penalty tariff of 25% on Indian goods exported to the US has come into effect Wednesday, pushing the total tariffs on New Delhi to 50%. The reciprocal tariff of 25% on Indian products is expected to continue through 2025-26 (Apr-Mar) while the additional tariff is anticipated to cease after November, a research report by Nomura said.

 

"At these rates, tariffs on India will be higher than in neighbouring economies and double of the tariff rates in ASEAN (Association of Southeast Asian Nations). The indirect impact can be meaningful, too, in the form of weaker corporate capex", a report by HSBC said. 

 

The effective tariff rate on Indian exports to the US is said to range from 33-35%, according to reports by Nomura and HSBC. Nomura also lowered the GDP forecast for FY26 to 6.0% on year from 6.2?rlier, owing to weaker exporters and spillovers to labour market and investments. In the worst case scenario, where the 50% tariffs remain effective for longer than expected, the GDP growth may be seen lower at 5.8%, Nomura said. 

 

The 50% reciprocal tariff on India is one of the highest levels regionally and globally, hinting at little rapprochement to bring a mutually beneficial bilateral trade agreement between Washington and New Delhi before the tariffs came into effect, the Nomura research report said. The report said the impact of such high tariffs will depend on the duration of these tariffs and the sectors, such as finished autos and parts, steel, aluminium and copper to be impacted. Sectors such as semiconductors and electronics, pharmaceuticals, lumber, energy and bullion do not attract any tariffs as of now. 

 

Nomura laid three channels through which the Indian economy will be affected due to the higher tariffs. A direct hit to export orders in sectors such as textiles, gems and jewellery may prove to be a trade emargo and will amplify for micro, small, and medium enterprises who may not have the financial wherewithall to withstand the tariff shock. Further, weaker export orders also jeopardize job creation and may threaten job losses in employment-intensive sectors of textiles, jewellery, leather goods, apparel and metals. Finally, a rapidly challenging global environment may turn investor sentiment jittery, leading to continued weakness in private capex.

 

According to the report by HSBC, if the 50% tariff sticks for a year, the current account deficit will likely double to about 1.3% of GDP against 0.6% last year. Nomura expects the current account deficit to widen marginally to 1% of GDP, from 0.8?rlier, in FY26 with both import and export growth moderating as lower exports will impact raw material and intermediate goods imports. 

 

However, the upcoming goods and services tax rationalisation is seen as a silver lining, which may offset the impact of the US tariffs in the medium term, both the reports said. "September may see renewed weakness, even if temporary, led by weaker new export orders as high tariffs set in. If GST rate cuts take a few weeks, then some may postpone purchases during that time," HSBC said. The GST council is set to discuss the GST rate cuts on Sept. 4. 

 

In the medium-term, the focus is likely to shift to diversifying India's export markets, Nomura said. The Indian government is fast-tracking deals with other countries, including the EU, New Zealand, Oman, Chile and are building export promotions in key economies across West Asia and Africa. "We expect India to maintain its strategic autonomy, reduce overdependence on any single partnership, and diversify its alliances," Nomura said. 

 

On the monetary policy front, Nomura expects the Monetary Policy Committee of the Reserve Bank of India to reduce the repo rate by 25?sis points in October and December, pulling the benchmark lending rates to 5.00% by the end of 2025 and further cuts next year. "We expect the full impact of tariffs to become apparent after September and the RBI to recognise these downside risks at the 1 October policy meeting," the report said.  End

 

US$1 = INR 87.60

 

Reported by Gowri Lakshmi

Edited by Deepshikha Bhardwaj

 

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