'Total effective tariff on India to increase by 19.5%...": Goldman Sachs says in its report

The decision taken by President Donald Trump to implement extensive tariffs on imports from both allies and rivals has led to potential threats of retaliation, further escalating tensions in the global trade landscape. Despite this uncertainty, analysts and financial institutions are optimistic about the limited impact these tariffs will have on India's economy.

As part of his economic strategy known as the "Liberation Day" plan, President Trump revealed the introduction of new tariffs on Thursday. These tariffs, including reciprocal measures against countries such as India (at 27%), China, Brazil, Japan, and the European Union, are set to take effect in the near future. The Trump administration announced that starting on April 5, a standard tariff rate of 10% will be imposed on all US imports, with reciprocal tariffs taking effect on April 9.

"Total effective tariff on India to increase by 19.5% with announcements so far, estimate a potential decline of $15 bn in Indian exports, which is about 0.4% of India’s GDP," Goldman Sachs noted in its report. 

In CY24, the US emerged as one of the prominent trading partners for India, facilitating bilateral trade valued at $124 billion. During this period, Indian exports to the US amounted to $81 billion, while imports from the US stood at $44 billion. 

Consequently, India enjoyed a trade surplus of $37 billion in CY24. The US holds the distinction of being India's primary export destination, commanding an 18% share in CY24, a significant increase from 13% in CY14 and 6% in CY06. It is worth noting that India's imports from the US remained consistent at 6% of total imports in CY24, compared to 5% in CY14.

According to domestic brokerage firm Motilal Oswal, the impact of US tariffs on India is expected to be minimal. India's exports in the six most vulnerable sectors account for just 1.1% of the country's GDP. 

Motilal Oswal stated, "Overall, we anticipate that the impact of reciprocal tariffs on India will be limited nationally, assuming full product-level reciprocity." 

According to Motilal Oswal, India could potentially experience a trade decline in exports to the US totaling approximately $3.6 billion. This amount accounts for only 0.1% of India's GDP. The predicted decrease is attributed to a tariff discrepancy of 9% and an assumed elasticity of India's exports to the US with respect to tariffs at -0.5. This indicates that for every 1% increase in the tariff rate, India's exports to the US could decrease by 0.5%. 

"This is because with a tariff differential of 9% and assuming that the elasticity of India’s exports to the US with respect to tariffs is -0.5 (implying a 1% rise in the tariff rate would reduce India’s exports to the US by 0.5%),” said Motilal Oswal.

This view is supported by key international brokerages such as HSBC. 

According to HSBC, the forecast for world trade indicates a significant decline in export volume growth, from 2.9% in 2024 to 1.3% in 2025-26. This change is attributed to reduced US import demand and the adverse effects of uncertainty on global confidence and investment.

The Federation of Indian Export Organisations (FIEO) also noted that the import duties imposed by US President Donald Trump will have a significant impact on Indian businesses. Despite this, India's position remains relatively favorable compared to other nations.

“We have to assess the impact, but looking at the reciprocal tariffs imposed on other countries, we are in a lower band. We are much better placed compared to our key competitors such as Vietnam, China, Indonesia, Myanmar, etc. We will definitely be affected by the tariffs, but we are much better placed than many others,” Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisations (FIEO) told PTI.

US tariff on India

During his recent address, the President of the United States discussed the issue of high tariffs imposed by India on American goods. In response, the President announced the implementation of reciprocal tariffs on various countries, including a 26 percent discounted reciprocal tariff on India.

In support of his announcement, the President displayed a chart illustrating the tariffs applied by countries such as India, China, the UK, and the European Union, as well as the reciprocal tariffs these countries will now face.

The chart revealed that India had set tariffs at 56 percent, citing concerns such as currency manipulation and trade barriers. Consequently, the United States will now enforce a discounted reciprocal tariff of 26 percent on goods imported from India.

“India, very, very tough. Very, very tough. The Prime Minister just left. He’s a great friend of mine, but I said, ‘You’re a friend of mine, but you’re not treating us right. They charge us 52 per cent…,” Trump said.

Despite facing challenges from Trump's tariff policies, global economists are confident that India will maintain its position as the fastest-growing economy in the world. The IMF's January World Economic Outlook projects that India will soon become the third-largest economy globally. Recent research by Nomura also highlights India as one of Asia's most robust economies amidst the current trade tensions.