India's Resilient Trade: Minimal Impact from US Tariff Proposals

A report indicates that the US's upcoming reciprocal tariffs will have a limited effect on India, impacting only 1.1% of its GDP. The tariff difference with the US stands at 9%, but key vulnerable sectors contribute minimally to India's economy. The trade surplus with the US continues to grow.

India is poised to weather the forthcoming reciprocal tariffs from the United States with minimal economic disruption. According to a report by Motilal Oswal, despite a significant tariff differential of 9% between the two nations, the impact on India's GDP is expected to be just 1.1%, due to the limited reliance on US-bound exports from six vulnerable sectors.

The report elaborates that the vulnerability lies in sectors such as electrical machinery, gems and jewellery, and pharmaceuticals, which combined are responsible for USD 42.2 billion of exports to the US—only a fraction of India's GDP. The anticipated drop in exports translating to USD 3.6 billion or 0.1% of GDP underscores the low elasticity of these goods to changes in tariff rates.

Other sectors, like agriculture and dairy, are less exposed due to their inherently low export value to the US. Additionally, areas where India has a trade deficit with the US, such as energy commodities and metals, are deemed less susceptible as higher tariffs would inadvertently affect US interests. Despite India having the largest tariff gap among major nations, the actual threat of targeted tariffs remains low, supported by its position as the US's 10th largest trade surplus partner.

(With inputs from agencies.)