US reciprocal tariff may shave off India’s GDP by up to 50 bps: Experts
India, however, is likely to be relatively less impacted among Asian economies as other countries have been hit by higher tariff rates or run a larger trade surplus with the US
New Delhi: The reciprocal tariff announced by the Trump administration can shave off India’s GDP growth rate by up to 50 basis points to 6 per cent and the country’s exports to the US could fall by 2-3 percentage points in the current fiscal, experts said on Thursday.
EY Chief Policy Advisor D K Srivastava said, “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”.
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Standard Chartered Bank Head-India, Economics Research, Anubhuti Sahay said an effective 20 per cent tariff increase on Indian exports to the US ( after considering the exempted goods) in our view is likely to adversely impact India’s GDP by 35-40 bps, ceteris paribus.
“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,” Sahay said.
She said while a loss in India’s GDP is inevitable on higher tariff rate imposition, India is likely to be relatively less impacted amongst the Asian economies as other countries have been hit by higher tariff rates than India or run a larger trade surplus with the US especially in the non-exempted sectors.
According to EY’s Srivastava, the US tariff hikes could have a favourable impact on the country’s exchange rate as the dollar could come under pressure in the US with a likely rise in inflation.
The US has announced 27 per cent reciprocal tariffs on India saying New Delhi imposes high import duties on American goods, as the Trump administration aims to reduce the country’s trade deficit and boost manufacturing.
Essential and strategic items such as pharmaceuticals, semiconductors, copper, and energy products like oil, gas, coal and LNG are exempted from higher tariff rates. Imports from India are already facing a 25 per cent tariff on steel, aluminium, and auto sectors in the US.
For remaining products, India is subject to a base line tariff of 10 per cent between April 5 and April 8. Then the tariff will rise to country-specific 27 per cent starting April 9.
Srivastava suggested that India should respond to the 27 per cent US reciprocal tariff by reducing its trade surplus with the US by way of increasing imports from the US, particularly of crude oil, gas and high technology products such as aircraft, nuclear reactors and defence-related imports.
“The idea is to focus on trade balance, not on tariff rates,” Srivastava told PTI. He said that some of the tariff rates in India are cosmetic and unnecessary with respect to the US.
“So we should design a country-specific, commodity-specific tariff rate structure with respect to the US in which some of the cosmetically high tariff rates should be reduced, because even if we reduce it, it is not as if Indian markets would be flooded with US goods,” Srivastava said.
He said there would not be a great demand for US automobiles in India as they are expensive. Baker Tilly ASA India, National Head – Accounting and Business Support, Rajiv Arya said, “we need to reinvent and restart the three-decade-old liberalisation agenda. Over the last three decades, India has been a protectionist economy, as a result what started as an era of reduction of tariffs, reverted to be one of the highest tariffs globally.”
Morgan Stanley economists Upasana Chachra and Bani Gambhir said they see a downside risk of 30-60 bps to growth estimate of 6.5 per cent for FY26.
“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, a slowdown in US growth and weak global trade momentum will impact external demand. More importantly, we expect the impact to be more pronounced through the indirect channel of weaker corporate confidence, which will dent the risk appetite and further defer the capex cycle,” Morgan Stanley said.
