In a significant development in US-India trade relations, US President Donald Trump has imposed an additional 25% tariff on India for purchasing Russian oil, pushing the headline tariff rate to 50%. However, the effective tariff rate for India stands at approximately 33.6%, according to calculations by Nomura.

Tariff Structure and Exemptions

The disparity between the headline and effective rates stems from a nuanced tariff structure:

• About 60% of US imports from India face the full 50% tariff
• Significant exemptions exist for various sectors
• Sectors completely escaping tariffs under Section 232 investigation include:
  • Semiconductors
  • Electronics
  • Pharmaceuticals
  • Lumber
  • Energy
  • Bullion
• Finished autos face a 25% tariff rate

Regional Comparison

India's $87 billion exports to the US now face higher effective tariffs compared to some regional competitors:

Economic Impact

The tariff increase is expected to have significant economic implications:

• HSBC estimates India's GDP growth could decline by 0.70 percentage points if tariffs persist for a year
• Labor-intensive sectors like jewelry, textiles, and food items are likely to bear the brunt of the impact
• Key affected sectors, particularly textiles and gems & jewelry, face increased regional competition risks

Economic Forecasts and Responses

In light of these developments:

• Nomura has revised India's GDP growth forecast for the fiscal year from 6.20% to 6.00%
• The Indian government is expected to provide targeted support for exporters, with fiscal costs estimated to be under 0.10% of GDP
• The Reserve Bank of India (RBI) may implement monetary policy changes:
  • Potential 25 basis point rate cuts in October and December
  • Targeting a terminal rate of 5.00% by the end of 2025

As global trade tensions continue to evolve, the impact of these tariffs on India's export-oriented sectors and overall economic growth will be closely monitored by policymakers and economists alike.

In a significant development affecting US-India trade relations, President Donald Trump has imposed a 25% tariff on all Indian origin commodities through an executive order titled 'Further Modifying the Reciprocal Tariff Rates'. The tariff, set to take effect from August 7, applies universally without any product-level exemptions, transition period, or sectoral waivers.

Impact on Indian Exports

The United States, India's largest export market, receives $85.00 billion worth of goods annually. According to the Global Trade Research Initiative, approximately $25.00 billion worth of products are now at risk due to this new tariff. The sectors expected to be hardest hit include:

• Textiles and garments
• Jewellery and precious metals
• Pharmaceuticals
• Engineering goods
• Auto components
• Electronics and IT services

India's Response

India has adopted a measured response to this development:

• Officials are holding talks with exporters in Mumbai to assess sectoral impact and develop mitigation strategies.
• The External Affairs ministry has emphasized that India's energy and defence ties represent strategic sovereign choices.
• The Federation of Indian Export Organisations (FIEO) has requested emergency measures to offset the impact, including:
  • Emergency credit lines
  • Shipping subsidies
  • Accelerated GST refunds

Economic Implications

While export-oriented stocks experienced short-term pressure, analysts note that exports to the US account for less than 2% of India's GDP. This suggests that the overall impact on the Indian economy might be limited, although certain sectors may face significant challenges.

Future Steps

India plans to address this issue through multiple channels:

1. Escalating diplomatic negotiations with the US
2. Enhancing domestic resilience through expanded export incentives
3. Accelerating free trade agreements with other partners, including:
   • European Union
   • Canada
   • Gulf Cooperation Council

As this situation develops, businesses and policymakers will be closely monitoring the impact of these tariffs and the effectiveness of India's response strategies.