India unfazed by Trump's reciprocal tariffs: Minimal impact on GDP, says report

NEW DELHI:As US President Donald Trump gears up to announce reciprocal tariffs, a report by Motilal Oswal suggests that India's economy will face only a limited impact. Despite India having the highest tariff differential with the US—standing at 9%—the overall effect on India's GDP is expected to be just 1.1% due to the composition of its exports.

Key findings from the report
The report highlights that while India’s exports to the US in the six most vulnerable sectors amount to $42.2 billion, this figure represents just 1.1% of India’s GDP. The most impacted industries could include:

• Electrical machinery
• Gems and jewellery
• Pharmaceutical products
• Machinery for nuclear reactors
• Iron and steel
• Seafood

A tariff increase could result in a $3.6 billion reduction in exports to the US, which equates to just 0.1% of India's GDP. The study assumes an export elasticity of -0.5, meaning that for every 1% increase in tariffs, India’s exports to the US would decline by 0.5%.

India-US trade at a glance

In 2024, bilateral trade between India and the US reached $124 billion. India exported goods worth $81 billion while importing $44 billion, leading to a trade surplus of $37 billion.

The report points out that despite India having the largest tariff gap among major nations, the US's trade deficit with India ranks only 10th among its trading partners. This suggests India may not be targeted as aggressively as nations like Mexico, Canada, and China.

Who bears the brunt?

Some industries may be less vulnerable due to India’s existing trade patterns:

• Agriculture and dairy products, despite a high tariff differential, contribute only $0.5 billion to exports and are unlikely to be significantly impacted.
• Energy commodities, metals, and autos, where India runs a trade deficit with the US, are less at risk since higher tariffs on these items would hurt American businesses more than Indian exporters.

India’s trade surplus with the US has nearly quadrupled over the past decade, growing from $9 billion (0.9% of India’s GDP in 2015) to $37 billion (1.0% of GDP in 2024). This expansion has been driven by:

• Increased electronics exports, particularly after India introduced a Production-Linked Incentive (PLI) scheme in 2020.
• Higher shipments of pharmaceuticals and textiles to the US.

While concerns remain over potential disruptions in key sectors, the report ultimately concludes that India is well-positioned to weather the impact of US reciprocal tariffs. With a diversified export base and a growing trade surplus, India is unlikely to feel the kind of economic squeeze that other major US trading partners may face.