Trump tariff: ‘Muted’ impact on growth, may ‘hit exports’

NEW DELHI: US President Donald Trump’s move to impose a 25% tariff on Indian imports from August 1 and an unspecified “penalty” for buying Russian oil and defence equipment is unlikely to have a major impact on India’s overall economic growth but short-term sentiment may be dented.Growth is expected to be in 6.2%-6.5% range in the current fiscal despite some short term pain for exports and uncertainty for a few key sectors. Estimates by brokerages show the impact on GDP growth could be in the 30-50 basis points range.The optimism on growth is based on a raft of factors, the key being the fact that the Indian economy is largely led by domestic demand which is expected to remain intact. Several key indicators are showing signs of robust expansion against the backdrop of global uncertainty and a recent finance ministry report for June said with inflation remaining within the target range and monsoon progress on track, “the domestic economy enters the second quarter of FY26 on a relatively firm footing”, as domestic supply and demand fundamentals remain resilient.“While the US is India’s largest trade partner, the Indian economy is relatively more domestically oriented than most of the region and relies far less on trade,” said Aditi Raman, associate economist at Moody’s Analytics.“Pharmaceuticals, gems, and textiles are key sectors that are likely to be hit. A point of contention is market access to the key agricultural and dairy sector, which India has historically been reluctant to grant,” said Raman.India still remains the fastest growing major economy and the IMF in its latest forecast has raised its GDP growth projection for FY26 to 6.4% from the earlier 6.2%. It also lifted the projections for global growth, citing easing global trade tensions.Some experts see a muted impact of the latest threat from the US President on the country’s growth. “At 25%, tariffs on India are higher than emerging market Asian peers, but we expect final tariffs to settle lower as trade deal talks progress. We estimate 30 basis points (bps) of GDP growth impact should this threat materialise,” Barclays said in a note. Some economists said the extent of the impact on growth would also depend on the size of the penalty if it is imposed as talks are still ongoing. “The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India’s GDP growth. The extent of the downside will depend on the size of the penalties imposed,” said Aditi Nayar, chief economist at ratings agency ICRA.