India-US Trade Agreement Could Alleviate Tariff Effects: Report
Click to start listening
Synopsis
A recent report suggests that the potential effects of increased US tariffs on India remain uncertain. However, a favorable trade deal could help limit the negative impact by the end of this year, thereby benefiting both countries economically.
Key Takeaways
- 60% of India's GDP is driven by domestic consumption.
- Merchandise exports only account for 12% of GDP.
- A 10% decline in US exports may reduce GDP growth by 0.2%.
- Pharmaceutical exemptions may limit tariff impacts.
- Strong diplomatic ties could expedite a trade agreement by 2025.
New Delhi, April 4 (NationPress) The immediate effects of increased US tariffs on India appear uncertain at the moment, but a mutually advantageous trade agreement by year's end could mitigate these effects, as indicated by a report released on Friday.
India's economy is predominantly domestic-focused, with consumption contributing to 60 percent of its total GDP. Conversely, merchandise exports constituted merely 12 percent of GDP in FY24.
The report from Bank of Baroda (BoB) suggests that if there is a 10 percent drop in the value of India's exports to the US, the overall effect on India's GDP growth could be around 0.2 percent.
“Nevertheless, exemptions for pharmaceutical products and the potential for a trade agreement may help to lessen this impact. Additionally, Indian exporters might have the chance to capture market share from other South-East Asian nations, which could make these tariffs slightly beneficial for India,” stated Aditi Gupta, an Economist at Bank of Baroda.
However, US President Donald Trump mentioned on Thursday (US time) that his administration is also contemplating possible tariffs on pharmaceuticals.
At first glance, the sectors that are expected to face the most significant impact include electronics, precious stones, and machinery, along with readymade garments.
Currently, the direct consequences of rising US tariffs on India remain uncertain. It largely hinges on whether exports decline and to what degree. Since higher tariffs have been applied to all nations, India's disadvantage could be somewhat diminished, Gupta noted.
Among major US trading partners, South-East Asian countries like Vietnam, Thailand, Taiwan, and Indonesia have faced the most significant penalties, with tariff rates ranging between 32 percent and 46 percent.
The tariff rate imposed on China has been raised to 34 percent (in addition to the existing 20 percent), while for India, the new tariff rate is set at 27 percent.
The report emphasized that due to the strong diplomatic ties between the two nations, the momentum towards finalizing a mutually beneficial trade deal by the end of 2025 is anticipated to be swift, further reducing the impact.
