The Finance Ministry has released its July monthly economic review, stating that the immediate impact of President Trump's tariffs on India appears to be limited; however, the secondary and tertiary effects on the economy pose challenges that must be addressed. These potential ripple effects necessitate careful consideration and proactive measures to safeguard India's economic interests.
The report was released on Wednesday, in the wake of the U.S. imposing a total of 50% tariffs on Indian exports. These tariffs, which took effect on Wednesday, are a result of an additional 25% tariff imposed by the U.S. on imports from India in response to India importing oil from Russia, adding to the initial 25% tariff approved on July 31.
Despite the challenges, government sources indicate that the impact of the tariffs is unlikely to be as severe as initially feared, given the diversified nature of Indian exports. The Finance Ministry emphasizes that ongoing India-US trade negotiations will be crucial for the country's economy. Communication channels between India and the U.S. remain open, and efforts to resolve the tariff issue will continue. Government sources have said that there is no cause for panic for exporters and are stressing that this is a temporary phase in the long-term relationship between India and the U.S.
To mitigate the potential adverse effects of the tariffs, India is pursuing a diversified trade strategy to sustain its trade performance. This includes crucial trade deals with Britain and agreements with other European countries. India is also engaged in ongoing talks with New Zealand and the European Union. The Finance Ministry acknowledges that these initiatives will take time to show results and may not fully address the potential shortfall in exports to the United States if the current tariff rates persist.
In addition to diversifying its trade relationships, the Indian government is promoting a 'Swadeshi' mantra to reduce the economy's reliance on exports. Prime Minister Narendra Modi has called on Indians to be "vocal for local" and prioritize the purchase of Indian goods. Reserve Bank of India Governor Sanjay Malhotra has also affirmed the central bank's commitment to supporting sectors adversely affected by the tariffs.
The imposition of tariffs is expected to significantly impact certain sectors, particularly textiles, gems and jewellery, leather, marine products, and engineering. Exporters in West Bengal anticipate losses in the labor-intensive leather, engineering, and marine sectors. Stakeholders report that shipments and production are currently on hold due to the geopolitical headwinds intensified by the U.S. tariffs. It is estimated that these measures will impact at least ₹45,000 crore worth of Indian exports, with Bengal being among the hardest-hit states. The gems and jewellery exports to the U.S. reached nearly $10 billion in 2023-24. Analysts anticipate that stock market investors may remain jittery in the near term, with sectors like textiles, gems and jewellery, and leather remaining in focus.
