India’s strong domestic demand to cushion impact of US tariff hike

New Delhi, Aug 22 The US tariff hike of 50 per cent would hit Indian corporates unevenly, with the labour-intensive textiles and gems and jewellery segment expected to see only a moderate impact while pharmaceuticals, smartphones and steel are currently relatively insulated because of exemptions, existing tariffs and strong domestic demand, according to a report on Friday.

However, capital goods, chemicals, automobiles, and food and beverage exports would face the toughest adjustment, the S&P Global report states.

The fallout from a US move to double tariffs on Indian goods -- from 25 per cent to 50 per cent from August 27 -- in retaliation for New Delhi's oil trade with Moscow will not be uniform, in S&P Global Ratings' view. This will be the highest tariff in the region and will affect 50 per cent-60 per cent of India's total exports to the US.

However, the macroeconomic impact of the hike in tariffs would be cushioned by the large size of the India’s domestic market.

A recent Morgan Stanley report had stated that India is the “best placed country in Asia,” amid the global uncertainty triggered by US President Donald Trump’s threat to jack up tariffs, because of the nation’s low goods exports to GDP ratio.

“While India is exposed to direct tariff risks, we believe on balance India is less exposed to global goods trade slowdown considering that it has the lowest goods exports to GDP ratio in the region,” the report stated.

According to a Fitch report, the large size of India’s domestic market, which reduces reliance on external demand, is expected to insulate the country from the US tariff hike, with the economy expected to maintain a growth of 6.5 per cent in FY26.

Meanwhile, External Affairs Minister S. Jaishankar firmly defended India’s oil trade with Russia, stating that India is neither the largest importer of Russian crude nor isolated in its dealings with Moscow.

The Trump administration has claimed that the increased tariff is a direct response to India’s “increased purchases” of Russian oil during the Ukraine conflict.

Addressing a press briefing during his visit to Russia, EAM Jaishankar emphasised that India has increased its oil imports from the United States as well, and has acted in accordance with national interest and global market stability.

Jaishankar also made it clear that India is not the biggest purchasers of Russian oil, that is China. “We are not the biggest purchasers of LNG; that is the European Union. We are not the country that has the biggest trade surge with Russia after 2022; I think there are some countries to the South," Jaishankar remarked.

The minister also highlighted that India is not overly reliant on any single source and has significantly increased imports of oil from the US as well.

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