India is facing a potential economic setback as United States President Donald Trump has imposed a 50% tariff on Indian goods in response to India's continued import of Russian oil. This move, which effectively doubles the existing tariffs, could reduce India's GDP growth by as much as 1%. The tariffs, which are scheduled to take effect in 21 days, have been criticized by the Indian government as "unfair, unjustified, and unreasonable".
Analysts predict that the increased tariffs could significantly harm Indian exports, especially to the U.S., which is India's largest export destination. Bloomberg Economics estimates a potential 60% reduction in India's shipments to the U.S.. This could have a cascading effect, potentially reducing overall GDP growth by 1.1% over the medium term, especially if tariffs are extended to other sectors like pharmaceuticals and electronics.
Several sectors are expected to be particularly vulnerable. Labor-intensive industries such as textiles, footwear, gems, and jewelry could face significant challenges. Many businesses in these sectors may find their exports to the U.S. no longer competitive, forcing them to seek alternative markets. Export-oriented sectors like IT services, engineering goods, and auto components are also expected to feel the pinch.
The move has triggered concerns among Indian exporters, who fear the tariffs could make their businesses unviable. The Federation of Indian Export Organisations (FIEO) estimates that approximately 55% of India's shipments to the U.S. will be directly affected, placing Indian exporters at a 30-35% cost disadvantage compared to competitors with lower tariffs. Some buyers have already begun to put orders on hold as they reassess their sourcing options.
The Reserve Bank of India (RBI) had initially projected a 6.5% growth for fiscal year 2026, matching the previous year's pace but still below the 8% average seen in prior years. However, economists are now suggesting that this figure may need to be revised downwards. HDFC Bank economists suggest that if a resolution is not found within the 21-day grace period, India's FY26 GDP growth forecast may dip below 6%, potentially taking a 40-50 basis point hit. Bank of Baroda economists had initially priced in a 0.2% GDP impact from the initial 25-26% tariffs and are now re-evaluating the impact of the additional tariffs.
Despite the challenges, some analysts believe that India's strong domestic consumption could cushion the blow. They suggest that the market may experience a knee-jerk reaction with a 1-2% fall, but many expect a resolution to be reached. It's also worth noting that certain key sectors like IT, pharmaceuticals, and electronics are currently exempt from the tariff announcement.
The Indian government is likely to explore all possible avenues to negotiate with the U.S. and seek a mutually acceptable resolution. However, retaliatory tariffs from India could trigger a wider US-India trade conflict. In the meantime, businesses are advised to look through the near-term volatility, consider hedging currency risks, and identify alternative export markets.
