Thursday, July 31, 2025

What Trump’s 25% tariff could mean for India’s GDP

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A 25% tariff on Indian imports, announced by US President Donald Trump and set to take effect from August 1, could significantly impact India’s economy. According to an SBI study, a flat 20% tariff could shave off as much as 50 basis points (0.5%) from India’s GDP.

Extrapolating this, a 25% tariff is expected to exert an even more severe drag on export performance and overall economic growth.

The SBI study also pointed out that “a 1% rise in tariffs may lead to a 0.5% decline in export volumes,” suggesting the extensive implications of higher trade barriers.

In a statement, Trump said: “While India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country.”

He also cited India’s continued purchase of Russian oil and military equipment as one of the key reasons behind the tariff decision: “They have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of energy, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD!”


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 tariffs should be incremental negative for India’s exports as US accounts for more than 30% of India’s pharma exports, Garima Kapoor, Economist and Executive Vice President, Elara Capital pointed out.“If no deal is signed by Sept-October, we see a downside to full year GDP growth estimate for India by 20 bps,” she said.

Jayant Dasgupta, former envoy to the WTO, said: “On the point of this import of Russian oil… Lindsey Graham and the other senators had proposed a bill allowing the President to impose up to 500% tariff on countries which were importing oil from Russia. Now, President Trump has indicate that he may impose tariffs up to 100% on countries which import oil from Russia.”

“We can apprehend some action, which will be harsh. But the point is that we are not totally dependent on Russian oil, and we can always buy from other sources as well,” he added.

Former Finance Secretary S.C. Garg was more forthright in his criticism: “The kind of regime with the President of the United States and his people are running… this is no trade, this is no business. This is sheer blackmail. That kind of business cannot be done. You should stop doing negotiations and talking about things till sanity comes back.”

He further warned: “If the penalty means that they would be higher tariffs, that would only be killing the exports to the United States… We have sort of got into a situation where we probably cannot do any business with United States any longer, with this kind of tariffs.”

Ajay Sahai, Director General of the Federation of Indian Export Organisations, expressed disappointment and uncertainty. “It is quite disappointing. We are still not certain what will be the exact duty… Even if it is 25%, we have to see to what extent additional duty can be absorbed by the Indian exporter or the buyers.”

He added that some impact may be manageable in the short term: “Probably since these additional tariffs, the reciprocal tariff of a high 25% is for the limited time till India works out the BTA, they will be able to take a hit, and… recover that.”

Raymond Vickery, Senior Associate at the Center for Strategic and International Studies, called it a setback for the broader US–India strategic relationship: “This is a very unfortunate development… this approach of ‘my way or the highway’ is not the correct one. It is reflective very much of President Trump’s background as a real estate developer… this development will be harmful.”

He noted it may still be a window for diplomacy: “This is Trump approach, and he wants to have more negotiation, so more negotiation should take place.”

While the US deadline for tariff implementation is August 2, the US trade delegation is still expected to visit India in the latter half of August for the 6th round of Bilateral Trade Agreement (BTA) negotiations. Sources told CNBC-TV18 that India remains open to both a comprehensive trade deal or an interim agreement on mutually accepted items.

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