Trump’s 25 per cent tariff likely to have adverse impact on India’s GDP: Experts

The imposition of 25 per cent tariff on US imports plus a penalty from 1 August will dent India's GDP, experts said, expressing hope that it should be mitigated by a "mutually beneficial" trade deal being negotiated with the United States.

The higher tariff, if sustained, may directly affect key sectors such as marine products, pharmaceuticals, textiles, leather and automobiles, where bilateral trade has been especially robust, experts added.

Earlier in the day, US president Donald Trump announced the imposition of a 25 per cent tariff on all goods coming from India starting 1 August, plus an unspecified penalty for buying military equipment and crude oil from Russia.

India's import of crude oil from Russia has risen from 0.2 per cent of total purchases before the Russia-Ukraine war to 35-40 per cent. New Delhi is the largest buyer of Russian oil after China.

The surprise announcement came a day after Indian officials said a US trade team would visit from 25 August to negotiate a trade deal.

When the US had initially imposed tariffs, we had lowered our forecast of India's GDP expansion to 6.2 per cent for FY26, presuming a tepid rise in exports and a delay in private capex, ICRA chief economist Aditi Nayar said.

"The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed," Nayar added.

EY India trade policy leader Agneshwar Sen said it is important to note that both countries remain positively engaged in active negotiations, with the US team expected in India later in August to finalise a comprehensive trade agreement.

"...considering our shared interests and history of cooperation, the two sides will be able to address these contentious issues constructively and arrive at a mutually beneficial agreement in the very near term," Sen said.

The 25 per cent tariff rate is certainly a negative development, as compared to the lower rate for peers such as Vietnam, Indonesia and the Philippines, which compete with India in similar categories of labour-intensive products and electronic goods, Elara Capital economist Garima Kapoor said.

It is, however, not clear if the 25 per cent duty will be imposed in addition to the existing 10 per cent baseline tariff. The 10 per cent tariff, which currently applies to most Indian goods barring a few, was announced by Trump on all countries on 2 April.

Also, the exact quantum of the penalty is unclear.

Among India's major trade competitors, the US has imposed lower tariffs on Vietnam (20 per cent) and Malaysia (25 per cent), but higher on Bangladesh (35 per cent) and Thailand (36 per cent).

On 2 April, had Trump announced high reciprocal tariffs on a number of countries, including India (26 per cent). The implementation of high tariffs was immediately suspended for 90 days till 9 July and later until 1 August, however, as America began negotiating trade deals with various countries. However, the baseline tariff of 10 per cent remains.

In addition to this, the US has imposed 50 per cent duty on steel and aluminium and the 25 per cent on auto sector.

Meanwhile, negotiations for the proposed bilateral trade agreement are on as a team from the US is visiting New Delhi on August 25 for the sixth round of talks.

The top officials of the countries concluded the fifth round recently in Washington.

The exact details of the tariffs on the exempted items such as pharma and the ones that were charged at a differential rate (such as iron, steel and auto) is unknown as of now, but inclusion of pharma into the tariffs should be an incremental negative for India's exports as US accounts for more than 30 per cent of India's pharma exports, Kapoor said.

"If no deal is signed by September–October, we see a downside to full-year GDP growth estimate for India by 20 basis points," she said.

Rishi Shah, partner and economic advisory services leader at Grant Thornton Bharat said given the escalating rhetoric around Russia–Ukraine negotiations, some form of adverse development was anticipated.

Two fundamental aspects merit emphasis, he said, adding that the first is that policy positions are rarely final, in today's rapidly evolving global scenario. Second, markets consistently demonstrate remarkable adaptive capacity, even under adverse conditions, economic actors innovate and new equilibria emerge.

"Finally, sustaining the growth momentum will ultimately depend on the ability to innovate while deepening economic partnerships across the global landscape. The current situation reinforces the wisdom of our multi-alignment approach in an increasingly multipolar world order," Shah added.

According to Nachiketa Sawrikar, fund manager with Artha Bharat Global Multiplier Fund, the Indian government would not be surprised by this tariff rate because its peers like China have a 30 per cent tariff rate.

"However other Asean countries have a tariff rate of 19–20 per cent. Bangladesh is trying to also get to the 20 per cent range. So it is not good news for India but could have been worse," he said.

Rahul Ahluwalia, founder-director of Foundation for Economic Development, said a 25 per cent tariff will leave India "worse off" vis-a-vis competing countries like Vietnam and China. He emphasised that India should aim to reach a deal with the US on trade policy.

Utsav Verma, head of research, Institutional Equities at Choice Broking, said investors will reassess their strategies with a mix of caution and optimism.

Sectors like textiles, pharmaceuticals, and automotive components are likely to be the most impacted and may see reduced investor interest in the short term.

However, recent progress in trade negotiations suggests a constructive path forward and "we believe that the trade deal will eventually follow, provided both nations show the necessary political will", he said, adding that many investors expect the tariff rate to eventually settle around 15 per cent.

According to Medical Technology Association of India chairman Pavan Choudary, however, Trump's announcement on Truth Social declaring steep tariffs on India from 1 August is troubling and seems economically shortsighted and strategically misguided.

As a sovereign nation, India makes independent choices on defence and energy, based on its national interest and long-term strategic priorities, he added.

"Attempting to punish these decisions through coercive trade measures is not only inappropriate but also counterproductive. Framing a key democratic partner in adversarial terms sends the wrong signal and could jeopardise a relationship built on shared strategic interests and trust," Choudary added.

During 2021–25, the US was India's largest trading partner. The US accounts for about 18 per cent of India's total goods exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.

With America, India had a trade surplus (the difference between imports and exports) of USD 35.32 billion in goods in 2023-24. It was USD 41 billion in 2024-25 and USD 27.7 billion in 2022-23.

In 2024-25, bilateral trade between India and the US reached USD 186 billion. India exported USD 86.5 billion in goods while importing USD 45.3 billion.

In services, India exported an estimated USD 28.7 billion and imported USD 25.5 billion, adding a USD 3.2 billion surplus. Altogether, India ran a total trade surplus of about USD 44.4 billion with the US.

In 2024, India's main exports to the US included drug formulations and biologicals (USD 8.1 billion), telecom instruments (USD 6.5 billion), precious and semi-precious stones (USD 5.3 billion), petroleum products (USD 4.1 billion), vehicle and auto components (USD 2.8 billion), gold and other precious metal jewellery (USD 3.2 billion), ready-made garments of cotton, including accessories (USD 2.8 billion), and products of iron and steel (USD 2.7 billion).

Imports included crude oil (USD 4.5 billion), petroleum products (USD 3.6 billion), coal, coke (USD 3.4 billion), cut and polished diamonds (USD 2.6 billion), electric machinery (USD 1.4 billion), aircraft, spacecraft and parts (USD 1.3 billion), and gold (USD 1.3 billion).

Combined PTI inputs