New Delhi, April 4 The direct impact of higher US tariffs on India looks fluid as of now and a mutually beneficial trade deal by the end of this year would limit the impact, a report showed on Friday.
India remains a domestic-oriented economy with consumption accounting for 60 per cent of the total GDP. On the other hand, merchandise exports accounted for only 12 per cent of GDP in FY24.
According to the report by Bank of Baroda (BoB), assuming a 10 per cent decline in value of India’s exports to the US, the total impact on India’s GDP growth is likely to be around 0.2 per cent.
“However, exemptions on pharma products and also the possibility of a trade agreement can limit this impact. Further, there is also an opportunity for India’s exporters to gain market share from other South-East Asian countries, in which case these tariffs could be marginally positive for India,” said Aditi Gupta, Economist, Bank of Baroda.
However, US President Donald Trump said on Thursday (US time) that his administration is also looking at possible tariffs on pharmaceuticals.
Prima facie, the sectors which are likely to be impacted most are electronics, precious stones and machinery, besides readymade garments.
Overall, the direct impact of higher US tariffs on India looks fluid as of now. It all depends on whether exports come down and to what extent. As higher tariffs have been imposed on all countries, the disadvantage for India could be muted to an extent, Gupta noted.
It can be seen that among major US trading partners, South-East Asian countries such as, Vietnam, Thailand, Taiwan and Indonesia have been penalised the most, with tariff rates ranging between 32 per cent-46 per cent.
Tariff rate on China has been increased to 34 per cent (on top of existing 20 per cent), while for India, the new tariff rate has been set at 27 per cent.
The report stated that given the good diplomatic relations between the two countries, the progress on finalising a mutually beneficial trade deal by end 2025 is expected to be quick, which will further limit the impact.
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