Because the India-US negotiations for a commerce deal at the moment are on ice, analysts predict that the tariff affect on India’s development trajectory and on the nation’s company sector could be overstated, however threat of second-order results from current tariffs might be rising. A US-India commerce deal, if secured, would decrease these dangers.
A senior authorities official mentioned that given the comparatively low weightage of US exports in India’s GDP, at beneath 2 per cent, the affect on the economic system is maybe overblown. Additionally, some key exports from India are nonetheless out of the tariff affect, together with prescribed drugs shipments. It stays to be seen if that standing continues going ahead, given the onerous place taken by White Home Commerce Advisor Peter Navarro, who, in a sharply-worded opinion piece in The Monetary Occasions wrote that New Delhi was “now cozying as much as each Russia and China” and that “if India desires to be handled as a strategic companion of the US, it wants to begin appearing like one”.
The federal government official quoted above indicated that there are not any talks with the US, not even any backchannel negotiations to dial down the tensions. The American negotiators’ scheduled go to to India in the course of the second half of August has successfully been postpone indefinitely.
The US is India’s largest export market. In line with score company Fitch, whereas there’s solely “a minimal direct tariff affect” on Indian IT service corporations and domestically targeted sectors similar to upstream and downstream oil and gasoline, cement and constructing supplies, engineering and development, telecoms, and utilities. If US tariffs are, nonetheless, sustained at ranges considerably larger than in different Asian markets, there might be average draw back dangers to India’s development projection of 6.5 per cent in FY26, it mentioned. This, in accordance with Fitch, would weigh on the working efficiency of extra Indian corporations and India’s corporates might be affected if US tariffs divert provides to different markets, which may current draw back dangers to the home worth assumptions made by the score company for some merchandise, similar to metal and chemical compounds.
The issue, although, is that whereas the tariff affect on Indian corporations could be restricted, the employment intensiveness of India’s export sectors which might be targeted on the US market, together with sectors similar to textiles and clothes, leather-based, gems and jewelry, engineering items and electronics, is proportionately excessive, and that may be a fear for policymakers. A lot of those sectors are dominated by small and medium enterprises and their labour intensiveness is often larger than corporates whereas their potential to deal with an exterior shock of this type is manner decrease than huge corporations.
One other senior authorities official mentioned the affect of reforms to India’s overseas commerce sectors and a broader reforms push, if finished nicely, may enhance general development prospects. The Finance Ministry Monday notified the elimination of 11 per cent obligation on cotton imports with instant impact amid widespread fears of job losses within the textile sector as a result of US tariffs.
The federal government mentioned that the elimination of import obligation on cotton in addition to Agriculture Infrastructure and Growth Cess (AIDC) “is critical within the public curiosity” and that notification will come “into pressure with impact from August 19, and shall stay in pressure as much as and inclusive of September 30”. The textile sector is anticipated to be hardest hit sector attributable to steep US tariffs as American is a key marketplace for Indian ready-made garment exports; its share in India’s complete garment exports in 2024 stood at 33 per cent, as per the Attire Export Promotion Council. Additionally, a consumption push from the proposed GST cuts, if executed as deliberate, may additionally assist.
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In line with estimates compiled by New Delhi-based GTRI, labour-intensive sectors contributed over $14.3 billion to India’s exports to the US in FY25, together with clothes ($5.33 billion), textiles and carpets ($2.38 billion), made-ups and worn clothes ($2.95 billion), leather-based ($795 million), footwear ($461 million), ceramics and stoneware ($1.55 billion), and wooden and paper articles ($823 million). These sectors are dominated by small and medium enterprises and are main employment mills in Indian states similar to Uttar Pradesh, Tamil Nadu, West Bengal and Gujarat.
The breakdown in commerce talks with the US assumes significance as President Donald Trump has introduced 50 per cent tariffs on Indian merchandise — the best on any nation globally. Whereas 25 per cent US tariffs on India have already kicked in, authorities officers have mentioned the levy of one other 25 per cent may come into impact on August 27.
The India-US commerce deal has been caught over India’s long-standing stance of defending Indian farmers in each commerce settlement New Delhi has entered into. Nonetheless, the US beneath Trump just isn’t solely prioritising market entry for its agricultural merchandise but in addition renegotiating offers to get market entry for it’s agri merchandise.
Fitch Scores mentioned that whereas India-based corporates typically have low direct publicity to US tariffs, sectors which might be presently unaffected, together with prescribed drugs, might be hit by additional US tariff bulletins. The danger of second-order results from current tariffs can be rising, which might be mitigated by a US-India commerce deal, if secured.
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India’s direct automotive exports to the US, together with components, are restricted, it mentioned, including that America is a key export vacation spot for Indian pharmaceutical corporations. Fitch mentioned it presently assumes “a minimal direct tariff affect” on Indian IT service corporations and domestically targeted sectors similar to upstream and downstream oil and gasoline, cement and constructing supplies, engineering and development, telecoms, and utilities.
“Nonetheless, if US tariffs are sustained at ranges considerably larger than in different Asian markets, we see average draw back dangers to our projection that the economic system will develop by 6.5 per cent in FY26. This might weigh on the working efficiency of extra Indian corporations. India’s corporates may be affected if US tariffs divert provide to different markets, together with India, as this might current draw back dangers to our home worth assumptions for some merchandise, similar to metal and chemical compounds,” it mentioned.