US tariffs could reduce India's GDP growth by up to 50 basis points: Experts

The recent decision by the US to impose reciprocal tariffs on Indian goods is expected to have notable implications for India's economic growth. Expert analyses suggest that these tariffs could reduce India's GDP growth by as much as 50 basis points. 

US President Donald Trump implemented a 27% reciprocal tariff on India, along with increased duties on numerous other nations. These broad global tariffs are anticipated to disrupt international markets and have a negative effect on various domestic industries, ranging from information technology to the automobile sector.

D K Srivastava, Chief Policy Advisor at EY, stated, "The maximum adverse impact on India's GDP growth will not be higher than 50 basis points. As per our earlier projection, the GDP growth estimate for current fiscal was 6.5 per cent, which may go down to 6 per cent without retaliation." This comes as India faces a prospective 20% tariff increase on exports to the US, which could potentially decrease India's GDP by 35-40 basis points according to Standard Chartered Bank's Anubhuti Sahay.

The implementation of reciprocal tariffs involves the US imposing taxes in response to similar tariffs or high import duties from another country. This trade policy serves as a tit-for-tat measure where one country raises duties to counteract trade restrictions imposed by another.

Changes to the tariff structure for Indian goods are as follows:

Existing tariffs: 25% on steel, aluminum, and auto parts.
New tariffs: Beginning April 5, a 10% baseline tariff will be applied to remaining Indian goods. From April 9 onwards, a 27% tariff will be imposed on India-specific imports.
Exempted sectors: Pharmaceuticals, semiconductors, energy products (oil, gas, coal, LNG), and copper.

This adjustment to the tariff system aims to address trade imbalances and protect domestic industries.

The US administration has announced tariffs on Indian exports, while certain essential goods remain exempt.  Sahay remarked, "However, the final impact would depend on the trade deal agreement between India and the US along with how each country negotiates/ retaliates on the proposed tariffs." Despite the potential for economic loss, India may experience less impact compared to other Asian economies, which face higher tariff rates and larger trade surpluses with the US. The expected tariff scenario could lead to a decline in India's export growth to the US by 2-3 percentage points during the current fiscal year. 

Morgan Stanley economists Upasana Chachra and Bani Gambhir have projected a downside risk of 30-60 basis points to India's growth estimate of 6.5% for FY'26. They noted, "While the tariffs exceed our estimates for India, on a relative basis, these are at par/lower than other key competing economies. With goods exports to the US at 2.1 per cent of GDP...the direct impact will likely be less severe." However, they also highlighted concerns about a slowdown in US growth and weak global trade momentum, which could dampen external demand.

The EY analysis indicates that the increase in US tariffs may exert pressure on the US dollar, potentially favouring the exchange rate for India. Srivastava noted that rising inflation in the US could make the dollar vulnerable, affecting global currency markets. India’s imports are already subject to a 25% tariff on steel and aluminium, illustrating the layered complexity of the trade environment. The broader impacts on corporate confidence and capital expenditure cycles remain to be seen, with potential setbacks in risk appetite among businesses.

(With agency inputs)