What is the Impact of Higher US Tariffs on India's Exports?
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Synopsis
A new report reveals that India's export losses from higher US tariffs may be limited, thanks to its domestic-driven economy. While the challenges remain, key sectors like services and electronics show resilience. Explore how these dynamics might shape India's economic landscape in the coming years.
Key Takeaways
- Direct export loss from US tariffs could be 0.3-0.4 percent of GDP.
- India's merchandise export dependence on the US is low, around 2 percent.
- Services exports remain unaffected by tariffs, providing resilience.
- Projected current account deficit at 0.9 percent of GDP in FY26.
- Shift in oil imports has minimal effect on CAD.
New Delhi, Aug 1 (NationPress) The projected direct loss in exports due to the increased US tariffs on Indian goods is estimated to be around 0.3-0.4 percent of the nation's GDP. This is attributed to India's primarily domestic-focused economy and its relatively modest share of goods exports to the US, as stated in a report by CareEdge Ratings released on Friday.
The report highlights that India’s overall dependence on exports is relatively low, with merchandise exports to the US comprising only about 2 percent of GDP, providing further resilience.
Additionally, the report points out that India's service sector exports are unaffected by these tariffs, helping to bolster the external sector.
It also anticipates that the current account deficit (CAD) will remain manageable at 0.9 percent of GDP in FY26.
Shifts in India's oil import sources away from Russia are predicted to have a negligible effect on the CAD, primarily due to the narrowing price difference between Russian Ural and the benchmark Brent Crude, now approximately $3 per barrel, down from an average of $20 per barrel in 2023.
In FY25, India's merchandise exports to the US reached $87 billion, with electronic goods representing the largest share at 17.6 percent, followed by pharmaceutical products at 11.8 percent and gems & jewelry at 11.5 percent.
The US constitutes 37 percent of India’s total electronic exports. Certain items in this sector have been temporarily exempted from the 25 percent US tariffs. Furthermore, India's pharmaceutical exports to the US, making up 35 percent of total pharma exports, have also been spared from these tariffs.
Despite this, the risk of sector-specific tariff actions remains a concern. India boasts one of the largest numbers of US FDA-approved manufacturing facilities catering to US generic medicine needs. The report notes that while uncertainties around tariffs persist, the sector's fundamental competitive advantages provide a buffer.
India's tariff advantage for exports to the US, when compared to other Asian countries like Vietnam, Indonesia, and South Korea, has diminished following the 25 percent US tariff, exacerbated by potential penalties linked to trade relations with Russia.
Nonetheless, ongoing India-US trade negotiations may offer some relief. However, India is expected to exercise caution regarding sensitive sectors like agriculture and dairy, indicating that these discussions might take time to reach a conclusion, according to the report.
In this context, it remains premature to identify clear winners and losers amid the evolving tariff situation. The volatility in global financial markets is anticipated to continue, making tariff-related developments crucial to monitor in the upcoming months.
Point of View
I believe that while the increase in US tariffs presents challenges, India's economic structure with a focus on domestic consumption and resilience in services and electronics can mitigate potential losses. Our nation must stay vigilant and adaptive in this evolving trade landscape.
NationPress
06/10/2025
Frequently Asked Questions
What percentage of India's GDP is affected by US tariffs?
The direct export loss from US tariffs on Indian goods is estimated to be around 0.3-0.4 percent of India's GDP.
How much of India's merchandise exports go to the US?
India's merchandise export exposure to the US is approximately 2 percent of its GDP.
What sectors are exempt from the US tariffs?
India's services exports and certain electronic goods have been exempted from the US tariffs.
How is India's current account deficit projected?
The current account deficit is projected to remain manageable at 0.9 percent of GDP in FY26.
What is the impact of oil import diversification on India’s economy?
Diversifying oil imports away from Russia is expected to have a minimal impact on India's current account deficit.
